New Delhi: Debt levels of BRIC governments - Brazil, Russia, India and China - are likely to remain more or less unchanged during the next five years, while it will rise “dramatically” in the United States (US), Japan, and the United Kingdom (UK), says a report.
According to a report by DB Research, a part of the German banking major Deutsche Bank, over the next five years government debt is set to decline moderately in the BRICs, while it will rise dramatically in the G4, with the exception of Germany.
A combination of lower fiscal deficits, faster economic growth and higher inflation will ensure debt sustainability for the BRIC nations, it said. Giving further details, the report said the gross general government debt in Brazil and India amounts to a sizeable 67% and 75% of gross domestic product (GDP), respectively, while in China and Russia it stands at a very low 20% and 10% of GDP, respectively.
Another notable point is that the BRIC government debt is almost exclusively held by residents, barring only Brazil, where foreigners own a little more than 10% of total government debt. In sharp contrast, in Germany and the US, foreigners hold 50% of government debt, while in the UK the figure stood around 30%.
However, since all BRIC economies have been experiencing strong real credit growth over the past two years, there are concerns about a future rise in non-performing loans and the potential need for the government to extend financial support to the banking sector.
Bank lending, to the private sector, amounts to 50% of GDP in Brazil, India and Russia and a very considerable 135% of GDP in China. Besides, government-owned banks account for 50% of total banking sector assets in China, 40% in both Brazil and Russia and 70% in India.
Since government owned banks account for a significant portion of the total banking sector assets in the BRIC nations, the risk of a potential liability is also greater.
However, even if the BRIC public sector is forced to take on contingent liabilities, they would still be in better shape, than the G4, the report said.
“Financially and politically, the BRICs will benefit from far greater fiscal flexibility than the advanced economies over the next decade and beyond, off-balance sheet liabilities notwithstanding,” the report said.