Gov't keeps pushing for higher debt-to-GDP ceiling

Home > Business > Economy

print dictionary print

Gov't keeps pushing for higher debt-to-GDP ceiling

Finance Minister Hong Nam-ki, second from left, explains the fiscal rule during a press briefing held at Sejong government complex on Monday. [YONHAP]

Finance Minister Hong Nam-ki, second from left, explains the fiscal rule during a press briefing held at Sejong government complex on Monday. [YONHAP]

 
The government said it favored a new guideline restricting the national debt to 60 percent of Korea's GDP.
 
But it wouldn't be legally binding, won't come into effect until at least 2025 and is far above a debt limit that has been respected by Korean governments for years, which is 40 percent of GDP.
 
The Finance Ministry said Monday it is planning to adopt a new fiscal rule that will give it more freedom to execute aggressive fiscal policies.
 
“In the world, 92 countries have fiscal rules,” Finance Minster Hong Nam-ki said. “Among advanced economies, Korea and Turkey are the only ones that don’t.”  
 
A debt-to-GDP ceiling prevents governments from spending too much and adding risk to an economy.
 
The Finance Ministry said the 60 percent limit will not be a legal requirement and therefore could be applied flexibly, meaning that in a crisis situation the government could exceed the ceiling.  
 
The maximum limit will be relaxed in times of major crisis including war, natural disaster or a global economic crisis, the ministry said. 
 
“We have put into consideration [in the new standard] the role of fiscal policy not being constrained in times of unusual circumstances such as an economic crisis,” Hong said.  
 
The idea of creating a fiscal rule arose in May when the government was working on a third supplementary budget that raised Korea's debt ratio to above 40 percent of its GDP. 
 
Since at least the Lee Myung-bak adminstration, the general consensus was that the debt limit should be 40 percent of GDP, which the Finance Ministry concurred with.  
 
A ratio exceeding 40 percent was believed to put Korea's fiscal soundness at risk.
 
In an early stage of the coronavirus outbreak, President Moon Jae-in ordered the Finance Ministry to disregard the 40 percent barrier citing the emergency situation.  
 
In late May, Moon argued that Korea’s debt-to-GDP ratio was far lower than the Organisation for Economic Cooperation and Development (OECD) member country’s average of 110 percent.  
 
The ruling Democratic Party, when preparing the third supplementary budget in May, argued that the government should not be held to the 40 percent ratio but should consider raising it to 60 percent.
 
With four supplementary budgets approved, the national debt-to-GDP ratio has been raised to nearly 43.9 percent.
 
BY LEE HO-JEONG   [lee.hojeong@joongang.co.kr]
Log in to Twitter or Facebook account to connect
with the Korea JoongAng Daily
help-image Social comment?
s
lock icon

To write comments, please log in to one of the accounts.

Standards Board Policy (0/250자)

What’s Popular Now