- International Monetary Fund’s Sovereign Debt Risk Assessment
- Unpacking the first ever COP ‘Health Day’
In the context of its Articles of Agreement, the International Monetary Fund (IMF) engages in annual bilateral discussions with its member countries. During these discussions, IMF staff gathers economic and financial data, engages in policy discussions with top officials, and subsequently compiles a report for review by the Fund’s executive board. Last Friday, the Finance Ministry released a statement titled ‘Factual Position in Comparison to IMF’s Article IV Consultations with India.’
GS3- Indian Economy
- Inclusive Growth
What are the risks associated with rising sovereign debt in a developing country like India? Suggest a suitable way forward strategy to effectively reduce the sovereign debt of a nation while maintaining the pace of development. (15 Marks, 250 Words).
About International Monetary Fund:
- The inception of the International Monetary Fund (IMF) was set in motion during the Bretton Woods Conference in 1944. Established on December 27, 1945, the IMF has evolved into a global organization encompassing 189 member countries.
With its headquarters situated in Washington, D.C., the IMF is dedicated to:
- Promoting global monetary cooperation,
- Ensuring financial stability,
- Facilitating and advancing international trade, employment, and global economic growth.
- Functioning as a specialized agency of the United Nations (UN), the IMF holds a pivotal role in the international economic system. Originating from discussions among 45 government representatives at the Bretton Woods Conference, the IMF commenced its operational phase on December 27, 1945, with 29 member countries bound by the treaty.
- Its financial operations began on March 1, 1947. Presently, the IMF boasts a membership of 190 countries and is recognized for its contribution to rebuilding international capital, enhancing national economic sovereignty, and promoting human welfare.
The Finance Ministry’s response to the Discussions with IMF:
- The Ministry’s statement, issued four days after the IMF published its latest details on consultations with India, highlighted that certain assumptions had been made, incorporating potential scenarios that do not accurately reflect the factual position.
- Specifically, the Ministry was addressing the IMF’s perspective, which suggested that adverse shocks could lead to India’s general government debt reaching or exceeding 100% of GDP by the medium term (by 2027-28).
Debt- to- GDP Ratio:
- The debt-to-GDP ratio serves as a measure that compares a nation’s public debt to its gross domestic product (GDP). This metric provides a reliable indication of a country’s capacity to repay its debts by assessing the relationship between what it owes and what it produces.
- Frequently represented as a percentage, this ratio can be understood as the number of years required to settle the debt if the entire GDP is allocated to debt repayment.
- According to the Fiscal Responsibility and Budget Management (FRBM) Act, the recommended Debt-to-GDP ratio is approximately 60%, with a breakdown of 40% for the Central Government and 20% for the State Government.
- The Ministry clarified that this was merely a worst-case scenario and not an inevitable outcome. Additionally, it underscored that other IMF country reports present even higher extreme worst-case scenarios, such as 160%, 140%, and 200% of GDP for the U.S., the U.K., and China, respectively.
- The combined debt of central and state governments was 81% of GDP in 2022-23, down from 88% in 2020-21. The IMF suggests that under favorable conditions, this figure could further decrease to 70% by 2027-28.
- The Finance Ministry noted that the global shocks experienced by India in this century, such as the 2008 financial crisis and the pandemic, impacted the entire world economy.
- In response to initial news reports, the Ministry clarified that its statement was not intended as a rebuttal to the IMF but as an effort to prevent misinterpretation or misuse of its comments, particularly the implication that general government debt would surpass 100% of GDP in the medium term.
Evolution of India’s Fiscal Position as per IMF:
- Semantics experts might debate whether the communication was confrontational or clarifying. India’s Director on the IMF Board had previously expressed reservations about the IMF staff’s conclusions on debt risks, stating that they “sound extreme,” along with concerns about other aspects of the economy.
- In the broader context, the IMF staff’s perceptions of India’s fiscal position have actually improved over the past year. While in 2022 they argued that India’s fiscal space was at risk, they now believe sovereign stress risks are moderate.
- This improvement is attributed, in part, to the ability of the central government, whose debt levels were around 57% of GDP last year, to meet fiscal deficit targets in recent times.
It is crucial for India to reduce debt and expenditures to adhere to its commitment of bringing the deficit to 4.5% of GDP by 2025-26 from an estimated 5.9% this year. Although reacting to an adverse detail in a report may draw more attention to it, the Ministry emphasizes that actions speak louder than words.
The 28th United Nations Climate Change Conference (COP28), convened in Dubai and hosted by the United Arab Emirates (UAE), took place against the backdrop of unparalleled challenges faced by the planet. This year has witnessed record-breaking temperatures, devastating wildfires consuming communities, and floods erasing cities, providing unmistakable evidence of the ongoing crisis.
- GS2- Social Justice- Health
- GS3- Environment- Pollution
Integrating health into climate planning is not only economically prudent but also vital for the overall effectiveness and sustainability of climate actions in India. Analyse. (15 Marks, 250 Words).
Climate Crisis and Health Crisis:
Elevated temperatures, heat stress, excessive rainfall, floods, a surge in water- and vector-borne diseases, and a rise in the frequency of extreme weather events collectively underscore the existential threat to global health security.
Rise in the frequency of extreme weather events:
Recently, in July 2023, extraordinary extreme weather events were witnessed on all seven continents of Earth.
About Extreme Weather Events:
Definition: Extreme weather, or severe weather, refers to significant deviations from typical weather conditions. These conditions may persist for an extended period or last only a day or two before returning to normal.
Impact: According to the World Meteorological Organization (WMO), globally, extreme weather, climate, and water-related events resulted in 11,778 reported disasters between 1970 and 2021. These events led to over two million deaths and incurred economic losses totaling USD 4.3 trillion. Notably, over 90 percent of the reported deaths worldwide occurred in developing countries.
- In India, 573 disasters occurred between 1970 and 2021, resulting in the loss of 138,377 lives.
- The World Health Organization (WHO) has gone so far as to declare climate change the greatest threat to global health in the 21st century. Marginalized communities find themselves at the forefront of the most severe impacts of climate change.
- According to estimates from the World Bank, climate change has the potential to push more than 100 million people back into extreme poverty by 2030, with a substantial portion of this regression attributed to the adverse effects on health.
- The climate risk index reveals that eight out of the ten countries most severely affected by extreme weather events are low- and middle-income nations.
- The Index evaluates the degree to which countries and regions have been impacted by the consequences of weather-related loss events, encompassing storms, floods, heat waves, and more. This impact is measured in terms of both fatalities and economic losses.
- The analysis considers the most recent available data for 2019, as well as data from 2000 to 2019. Notably, the 2021 Index excludes data from the United States of America.
- The Climate Risk Index unequivocally underscores that the consequences of intensifying climate change can no longer be overlooked, affecting every continent and region.
- The impacts of extreme weather events disproportionately affect the poorest countries, as they are particularly susceptible to the detrimental effects of hazards, possess lower coping capacities, and may require more time for reconstruction and recovery. Moreover, high-income countries are also experiencing severe repercussions from climate change.
Key Findings for 2021:
- Among the ten most affected countries in 2019, six were impacted by tropical cyclones. Recent scientific findings indicate that the frequency of severe tropical cyclones will increase with every tenth of a degree rise in the global average temperature.
- Of the top ten countries most affected by the quantified impacts of extreme weather events in 2019, eight belong to the low- to lower-middle-income category, with half of them categorized as Least Developed Countries.
- This underscores the disproportionate impact of climate change on vulnerable regions and highlights the urgency for global action to address this critical issue.
A Strong Global Response:
- On December 3, the inaugural Health Day at COP28 underscored the crucial connection between climate and health, emphasizing that tackling climate change is essential for advancing global health.
- The backdrop to this event and the imperative to address the fundamental cause of the climate crisis—fossil fuel usage—were set in early November.
- Leaders in health representing over 46 million health professionals globally issued an open letter, urging the COP28 Presidency and world governments to commit to an accelerated, just, and equitable phase-out of fossil fuels as the decisive path to health for all.
- With over 1,900 health professionals at this year’s COP, momentum was built to prioritize human health and well-being in climate decisions, marking a historic shift in focus. Various events and activities brought attention to people’s health for the first time at a COP.
- Notably, the COP28 UAE Declaration on Climate and Health signifies a global commitment to address climate-related health impacts, emphasizing the need for governments to strengthen healthcare systems. The declaration has garnered support from 143 countries to date.
- Under the COP28 Presidency, in collaboration with the World Health Organization (WHO), the UAE Ministry of Health and Prevention, and a coalition of champion countries, the first-ever climate-health ministerial took place.
- This gathering brought together nearly 50 Ministers of Health and 110 high-level health ministerial staff. Ministers from health, environment, finance, and related sectors outlined a roadmap and opportunities for action to address the rapidly growing burden of climate change on healthcare systems.
- The objective is to capture the extensive socio-economic benefits derived from improved health and well-being through climate action.
India’s Climate Challenges:
- It is notable that India did not have representation on the momentous Health Day at COP28. Over the past two decades, India has experienced a notable increase in extreme temperatures, occurrences of heat stress, cyclones, floods, droughts, and instances of malnutrition.
- In 2019, it ranked seventh globally for the severe impact of climate change, according to the Global Climate Risk Index.
- A report titled ‘India 2023: An Assessment of Extreme Weather Events,’ jointly presented by Down To Earth magazine and the Centre for Science and Environment, highlights that India witnessed nearly daily disasters in the first nine months of the current year.
- These disasters ranged from heat and cold waves, cyclones, lightning, heavy rain, floods, to landslides. The toll from these disasters included 2,923 human lives lost, affecting 1.84 million hectares of crop area, destroying over 80,563 houses, and causing the death of nearly 92,519 livestock.
- The most recent report from the Reserve Bank of India indicates that up to 4.5% of the country’s GDP could be at risk by 2030 due to the impact of extreme heat and humidity on labor hours. This underscores the economic risks associated with challenges related to heat alone.
- Additionally, India is notorious for its record on escalating air pollution, contributing to at least 1.6 million premature deaths in 2019. The country faces significant public health challenges, including malaria, malnutrition, and diarrhoea, further complicating the situation.
- The anticipated increase in these incidents, coupled with weather-related disasters and their health ramifications, poses a substantial threat to the already strained public health infrastructure in the country.
The Necessity of Strategic Planning:
- Emphasizing the inclusion of health considerations in climate planning for India is not just a requirement but an absolute imperative for various compelling reasons.
- A significant portion of the population, exceeding 700 million individuals, particularly those residing in rural areas, directly relies on climate-sensitive sectors such as agriculture, fisheries, and forests, as well as natural resources like water, biodiversity, mangroves, coastal zones, and grasslands for their livelihoods. It becomes essential to proactively devise plans and policies that address their health requirements.
- Prioritizing health in climate planning serves as a protective measure for both immediate and long-term well-being in the face of climate change impacts.
- This emphasis enhances community resilience and contributes to disease mitigation, ensuring that populations can adeptly navigate challenges and actively contribute to sustainable development.
The integration of health considerations into climate planning is not only economically sensible, as it reduces healthcare costs and boosts productivity, but also strategically crucial for the overall effectiveness and sustainability of climate actions in India.