The World Bank’s new Global Economic Prospects report has highlighted increasing fiscal vulnerabilities in some emerging market and developing economies (EMDEs). According to the report, in more than half the EMDEs, government debt has gone up by more than 10 percentage points of gross domestic product, while fiscal balance has deteriorated by five percentage points in one-third of the economies between 2007 and 2016.
Government finances have worsened in emerging market economies at a time when debt in the private sector has also gone up sharply.
Financial conditions in global markets are favourable at the moment, but a significant tightening could put pressure on both private sector and government finances—which could then affect growth prospects in these economies.
India, meanwhile, has done well in recent years by lowering the fiscal deficit. It is now working on a new fiscal framework aimed at reducing both the fiscal deficit and the debt stock in the coming years.