Finance minister describes policy tightrope

The Korean economy faces uncertainty as the upsurge in Covid cases, external risks and fiscal issues could constrain an economic recovery, the country's finance minister said Thursday.

Finance Minister Hong Nam-ki stressed the need to run economic policy in a delicate manner in a bid to pursue a harmonized operation with monetary policy.

"The Korean economy faces complicated conditions at home and abroad that could constrain its growth," Hong said at a government meeting on the economy.

He cited the virus, external economic risks and fiscal conditions as major factors that could weigh on economic growth.

He promised a "policy mix" in which the government supports economically vulnerable people while the central bank tightens monetary policy.

His remarks came amid concerns that the government's plan for another supplementary budget is not in sync with the central bank's efforts to curb inflation with rate hikes.

The finance ministry plans to propose an extra budget of some 14 trillion won ($11.8 billion) to support pandemic-hit small merchants.

Last week, the BOK raised the benchmark interest rate by a quarter percentage point to 1.25 percent, marking the third pandemic-era hike since last year. The central bank hinted at more rate hikes in the coming months.

The government plans to issue bonds to finance the extra budget. This will boost the national debt and worsen fiscal soundness amid the prospect that the country's debt will exceed the 1,000 trillion-won mark for the first time this year.

Global supply chain disruptions and uncertainty about the Federal Reserve's plan to scale down its monetary stimulus are expected to serve as major external risks for Asia's fourth-largest economy.

Yonhap