IMF cautions rising debt in Asia puts the area at risk

July 29, 2022: -According to the International Monetary Fund’s Krishna Srinivasan, increasing debt levels caused by inflation and tightening financial conditions in Asia cause concern.

“If you look at debt for the region, if you look at the share of total debt of Asia, aggregate debt, that’s gone up quite sharply,” Srinivasan, the director of the Asia and Pacific Department at the IMF, told on Wednesday.

He said that debt in the region includes increased from 25% before the pandemic to 38%.

Srinivasan said countries at risk include Laos, Mongolia, Maldives, and Papua New Guinea, citing Sri Lanka maintains already defaulted on its debt repayments.

Inflation in Laos gained 23.6% in June. The Asian Development Bank estimates Mongolia’s annual inflation will reach 12.4% in 2022. The Maldives has been working with a high deficit for years. While the Maldives’ debt-to-GDP ratio has declined over the past two years, it is still high at about 100% of GDP.

“So there are many countries in the region which are facing high debt numbers. And some of these countries are in debt distress territory. And so that’s something we must observe out for,” Srinivasan said.

On Tuesday, in its global economic outlook released, the IMF forecast a sharp slowdown in global growth from 6.1% the previous year to 3.2% this year, predicting growth in both China and India will be hit.

As a result, Srinivasan said development in Asia will be significantly impacted in 2022 and 2023, slowing to 4.2% and 4.5%, respectively.

“This year, we see inflation to be quite a significant factor. We marked up our forecast for inflation for Asia more broadly, and it’s particularly true for advanced economies in Asia,” Srinivasan said. He did not hazard a guess on “whether we are going to see a crisis or not” in the region.

“The markdowns reflect the profound impact of the Ukraine war. The war has led to a substantial increase in inflation,” Srinivasan said.

He expressed Asia had witnessed considerable tightening in financial conditions, significantly as advanced economies increased interest rates.