45% Liability

The South Korean government is preparing for a bill to keep the nation’s debt ratio and fiscal deficit at or below 45% and 3% of its GDP, respectively.
The South Korean government is preparing for a bill to keep the nation’s debt ratio and fiscal deficit at or below 45% and 3% of its GDP, respectively.

 

The Ministry of Strategy & Finance is planning to submit a bill to the National Assembly in September this year so that South Korea’s national debt ratio and fiscal deficit can be kept at or below 45% and 3% of its GDP, respectively. At present, the national debt ratio is close to 40%.

The ministry referred to the examples of EU and OECD member countries in determining the figures. The figures also reflect various economic conditions, the pace of aging of the population, the rate of increase in welfare spending, the possibility of inter-Korean unification, etc. For example, the figures are 60% and 3% in the EU with some exception clauses for ensuring flexibility in the event of a change in economic conditions.

In addition, according to the bill, any bill that is to be submitted by the government or the National Assembly and is expected to entail a fiscal burden has to come with cost estimates and methods for the procurement of financial resources. This is to inhibit new mandatory spending without financing measures. At the same time, the bill is expected to help address the problem of individual bill management by the central and local governments, social insurance agencies and public institutions in relation to fiscal management.

“This legislation is a new fiscal management framework to respond to changes in the population, economic and social structures,” said Song Eon-seok, Vice Minister of Strategy & Finance, adding, “It is expected to help deal with future fiscal risks and give some elbow room in terms of national finance.”

 

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