Korea's fiscal belt tightened another notch with 3% deficit cap

Home > Business > Economy

print dictionary print

Korea's fiscal belt tightened another notch with 3% deficit cap

Finance Minister Choo Kyung-ho announces the government's proposed fiscal rule during the economic ministers meeting held at the government complex in Seoul on Tuesday. [YONHAP]

Finance Minister Choo Kyung-ho announces the government's proposed fiscal rule during the economic ministers meeting held at the government complex in Seoul on Tuesday. [YONHAP]

The Yoon Suk-yeol administration is tightening the belt another notch with a proposal to cap the fiscal deficit at 3 percent of GDP.
 
Finance Minister Choo Kyung-ho said the "guideline" will come into effect next year and will be used when formulating the 2024 budget.
 
The administration earlier signaled a move toward fiscal discipline, and an about-face from the spendthrift ways of the previous administration, with the first drop in spending in 13 years when it proposed the 2023 budget in August.
 
Choo said the cap on the fiscal deficit would be 3 percent of GDP excluding payments made to social insurance programs. If the national debt-to-GDP ratio exceeds 60 percent, the cap drops to 2 percent.
 
Due to supplementary budgets executed earlier this year to fund the battle against Covid-19 and to support individuals and businesses during times of economic hardship, this year's budget deficit will come in at 5.1 percent.
 
The national debt is estimated to total 49.7 percent of the GDP and is expected to exceed 1,000 trillion won for the first time.  
 
The latest move by the Yoon government contrast greatly with the tone and policy of the previous government, which considered Korea's debt and fiscal situation relatively sound compared to other OECD member countries and believed that the government needed to spend more aggressively, especially on welfare and jobs.  
 
Under the Moon Jae-in administration, national debt increased by 47 percent.  
 
In October 2020, the previous administration proposed a debt-to-GDP-ratio cap at 60 percent and a fiscal deficit cap at 3 percent including the insurance programs — national health insurance, the national pension, employment insurance and workers' compensation insurance.  
 
This new guideline was supposed to go into effect in 2025 but was never implemented.
 
"Amid the uncertainties existing both internally and externally, fiscal soundness is our economy's last safety net," Choo said. "We have to tighten our belts and to further enhance our fiscal soundness as responsible national finance management is our responsibility for the future generations."
 
Choo stressed that among the OECD countries, Korea and Turkey are the only two that have yet to adopt a fiscal rule.  
 
In line with its fiscal discipline theme, the government will take a more aggressive look into the feasibility studies on projects supported by government funds.
 
"In recent years, projects that have been exempt from feasibility studies despite costing 120 trillion won have been managed loosely," Choo said.  
 
Between 2013 and May 2017, some 94 projects costing 25 trillion won have been exempt from the feasibility studies.  
 
Choo said that the feasibility studies will be swift, and that flexibility and transparency will be improved.  
 
 
 
 
 

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)