SEJONG, Oct. 5 (Yonhap) — South Korea plans to introduce rules to ensure fiscal soundness in 2025 as the nation is facing calls for more spending to counter slowing growth and an aging population.
The rules, which are subject to parliamentary approval, aim to keep the growth rate of government spending at a level of nominal growth of gross domestic product (GDP), the Ministry of Economy and Finance said in a statement.
Under the rules, the government plans to keep the nation’s debt-to-GDP ratio to 60 percent and its consolidated fiscal balance at minus 3 percent in 2025.
If the fiscal deficit exceeds the limit, the government will be required to draw up measures to ensure fiscal soundness, the ministry said.
However, such rules will be exempted in a time of crisis, like the coronavirus pandemic, the ministry said.
Finance Minister Hong Nam-ki told reporters that the government will “strictly” comply with the proposed rules.
Hong defended the exemption, saying that it would be problematic if the rules limit an aggressive fiscal policy in a national disaster or an economic crisis.
The government will spare no efforts to simultaneously maintain “fiscal responsibility” and “fiscal sustainability,” Hong said.
South Korea’s debt-to-GDP ratio is expected to reach 51.2 percent in 2022, 55 percent in 2023 and 58.6 percent in 2024, according to the ministry.
The nation’s GDP growth will hover at around 2.3 percent annually from 2020 through 2030 before falling off to around 1.3 percent in the 2030s and dropping below the 1 percent annual mark from 2040 onward, the ministry has said.
The rules come amid concerns that this year’s four extra budgets could strain fiscal health.
Earlier this month, the government drew up a fourth extra budget worth 7.8 trillion won (US$6.6 billion), aimed at helping small merchants and self-employed people cushion the economic impact of a recent resurgence of the new coronavirus.
It marked the first time in 59 years for the South Korean government to allocate four extra budgets in a single fiscal year.
The four extra budgets are expected to take the nation’s debt-to-GDP ratio to 43.9 percent this year, compared with just below 40 percent before the pandemic.
Pounded by the coronavirus outbreak, the nation’s economy has plunged into a recession as its gross domestic product shrank 3.3 percent in the second quarter after a 1.3 percent on-quarter retreat three months earlier.