While the recent softening of commodity prices and supply chain bottlenecks should help in lowering inflation going ahead, risks to growth and investment outlook may rise if inflation persists at high level, according to Reserve Bank of India Governor Shaktikanta Das.

Prioritising price stability, may therefore be the optimal policy choice in the current context for the South Asian region, Das said in his Keynote Address at the high-level Conference co-organised by International Monetary Fund (IMF) Asia and Pacific Department (APD) and IMF South Asia Regional Training and Technical Assistance Centre (SARTTAC).

He observed that the approach to disinflation, however, needs to be mindful of the rising risks to the growth outlook in an environment of deteriorating prospects for global trade activity.

Das noted that successful disinflation, credible monetary policy actions accompanied by targeted supply side interventions, fiscal, trade policy and administrative measures have become the key instruments. “During the first three quarters of 2022, food price inflation in South Asia averaged more than 20 per cent. The region’s heavy dependence on imported fossil fuels has made it vulnerable to imported fuel inflation,” he said.

Containing External Debt Vulnerabilities

The role of multilateral organisations, particularly the IMF and the World Bank, becomes crucial in making debt treatment efforts more effective, while also strengthening the mechanism of recording, reporting and analysis of debt data so as to enhance transparency and preserve debt sustainability, Das emphasised.

The IMF’s role in capacity building in the region, with a focus on region specific macro dynamics, policy effectiveness challenges, and economic aspirations of the nations would also be helpful.

He noted that a distinct shift in the creditor base over time in favour of private lenders and non-Paris Club official creditors has added a new dimension to debt restructuring processes for the low-income International Development Assistance (IDA)-eligible debtor countries.

The share of debt owed to non-Paris Club creditors rose to 68 per cent in 2021 from 42 per cent in 2010. The increasing reliance on private creditors has raised debt servicing costs and complicated creditor coordination in debt resolution efforts.

During 2010-2021, the average maturity on loans from private creditors was 12 years as compared with 26 years for loans from official creditors, and the average interest rate on loans from private creditors was 5 per cent vis-à-vis 2 per cent on loans from official creditors.