Moody’s Investors Service on Tuesday said India will be a few of the large emerging market sovereigns to have highest debt burden by 2021.
The coronavirus pandemic-induced deterioration in growth and fiscal dynamics will leave most large emerging market sovereigns with higher debt burdens over the following couple of years, it said.
“We expect government debt in the large emerging market sovereigns to rise by nearly 10 percentage points of GDP on average by the end of 2021 from 2019 levels, driven primarily by wider primary deficits, even if some are likely to see higher interest payments contributing to higher debt,” Moody’s said.
“Debt burdens in Brazil, India and South Africa will rise to a few of the highest across the large emerging market sovereigns by 2021,” Moody’s said.
America-based rating agency said medium-term growth and fiscal challenges pose downside risks as a few of these nations face economic risks and potential revenue shortfalls beyond the instant shock, provided their exposure to commodities, tourism and normally sectors exposed to lasting changes in behaviours, weak global demand and persistently weaker productivity growth.
“Delicate financial systems and/or contingent liabilities compound this risk for India, Mexico, South Africa and Turkey,” Moody’s famous.
It further said in India, increased stress inside the financial system, among banks and non-bank financial companies, raises contingent liability risks to the sovereign.
“Despite steps toward the resolution of high non-performing loans, the banking system continues to be afflicted by weak asset quality, and low loan-loss coverage and capital adequacy. This is particularly the case for state-owned banks, which account for around 70 per cent of complete banking system assets,” the agency said.
Lingering fragilities in the sector are likely to be compounded by a prolonged period of subdued economic activity in comparison to pre-coronavirus levels, it added.