Global public debt to rise to 100% of GDP by 2029: RBI governor

RBI governor Shaktikanta Das projected that global public debt will rise to 100% of GDP by 2029, up from the current 93.2% in 2023.  In his keynote address at a conference on "Central Banking at Crossroads," Das emphasised that this surge in public debt, driven by pandemic-related fiscal stimuli, presents a critical challenge today, significantly constraining monetary policy in many countries.

“Global public debt has surged post the pandemic to 93.2 per cent of GDP in 2023 and is likely to increase to 100 per cent of GDP by 2029,” Das said during the Monday conference.

Rising debt-to-GDP ratios in major economies raise sustainability concerns and place pressure on central banks to facilitate the financing of substantial public debts. This debt overhang poses risks of unanchoring inflation expectations and destabilising macroeconomic conditions.

Das added that central banks today face criticism for the distributional impacts of their actions, with concerns about negative equity compromising their independence. In India, however, he said that liquidity measures are carefully calibrated with end dates announced since the beginning itself.

He further noted that emerging market economy (EME) central banks face significant challenges on the international front, as global financial integration amplifies the effects of larger economies on capital flows and exchange rates. He emphasised the importance of enhancing policy frameworks in EMEs to manage external volatility and its consequences better.

The RBI governor argued that the global financial crisis (GFC) and the COVID-19 pandemic forced central banks to shift from being the "lender of last resort" to the "first resort". During that time, these central banks lowered interest rates to unprecedented levels and adopted unconventional policies, marking a significant departure from pre-1990s monetary practices.

Further, the governor mentioned that the Indian central bank has directed banks, NBFCs, and other regulated entities to utilise both internal and external information for their risk assessments. These entities must conduct periodic 'Money Laundering and Terrorist Financing Risk Assessments' to identify and mitigate risks related to money laundering (ML), terrorist financing (TF), and proliferation financing (PF) across regions and delivery channels.

He lauded the significant rise in cross-border worker remittances, capital flows, and e-commerce which has spurred growth in cross-border peer-to-peer (P2P) payments, particularly for EMEs like India.

With its 24x7 real-time gross settlement (RTGS) system, India has the potential to reduce the cost and time associated with remittances. The feasibility of expanding RTGS to settle transactions in major currencies such as USD, EUR, and GBP through bilateral or multilateral arrangements is under exploration. Initiatives such as Project Nexus aim to connect India’s Instant Payment System with those of Malaysia, the Philippines, Singapore, and Thailand for instant retail payments. India has also established cross-border payment linkages with Singapore, UAE, Mauritius, Sri Lanka, and Nepal.

Furthermore, Das highlighted the potential of Central Bank Digital Currency (CBDC) to enhance cross-border payments. He said that India has launched both wholesale and retail CBDCs, exploring value-added services such as programmability, interoperability with the UPI retail payment system, and offline solutions for remote and underserved populations. To facilitate cross-border CBDC transactions, harmonising standards and ensuring interoperability will be crucial, especially in addressing financial stability concerns linked to cryptocurrencies. A key challenge lies in countries designing their systems based on domestic priorities. However, this can be addressed by developing a plug-and-play system that allows for the adaptation of India's CBDC experience while respecting national sovereignty.