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The appreciation of the dollar has prompted a sharp currency depreciation and / or a significant decline in forex reserves in a number of emerging and frontier markets, Moody’s noted in a report on the impact of strengthening of the US dollar on other sovereigns, on Thursday.
The others that are least vulnerable to currency pressures include China, Brazil, Mexico and Russia.
This is because large savings channelled through the financial sector allows these economies to largely fund themselves domestically, thereby lower their exposure to volatile portfolio flows, it said.
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Moody’s said although India’s CAD has widened, driven in part by the recent rise in oil prices, it remains modest as a percentage of GDP and is largely financed by equity inflows, including foreign direct investment.
India’s foreign exchange reserves stand at over $400 billion.
“India’s significant build-up of foreign exchange reserves in recent years to all-time highs provides a support buffer to help mitigate external vulnerability risk,” it noted.
In FY 2017-18, India’s CAD was $48.7 billion, or 1.9 per cent of GDP, which was higher than $14.4 billion, or 0.6 per cent in 2016-17.
Moody’s also noted, “India’s limited external vulnerability is supported by a large and relatively stable domestic financing base for government debt, which contributes to the economy’s resilience by sheltering it from abrupt changes in external financing conditions,” it added.
The average maturity of India’s debt is close to 10 years and over 96 per cent of it is in local currency, which means it has low dependence on foreign-currency borrowing to fund.
“Its debt burden limits the risk of currency depreciation transmitting into materially weaker debt affordability,” Moody’s concluded.