The Korean government announced on April 4 that the country recorded a total income of 401.8 trillion won and a total expenditure of 384.9 trillion won in the fiscal year of 2016. As a result, the consolidated central government balance reached 16.9 trillion won, showing an increase of 17.1 trillion won from the previous fiscal year.
With the social security fund balance excluded, the consolidated central government balance reached a deficit of 22.7 trillion won during the period, showing an improvement of 15.3 trillion won in comparison to the previous year and 16.3 trillion won in comparison to the national budget.
The fiscal balance improved by one percentage point with respect to its GDP. This can be attributed to a large tax revenue. “Improved economic performances, reduced non-taxation, asset reporting and an increase in paid taxes contributed to the improvement of the consolidated central government balance last year,” the ministry explained, adding, “In addition, asset markets were in good conditions although temporarily.”
Last year, the national debt increased by 35.7 trillion won to 627.1 trillion won and the national debt (DI)-to-GDP ratio increased from to 38.3% from 37.8% in the previous year. Still, the rate of increase in government debt fell from the all-time high recorded in 2015. During the past four years, the debt of the South Korean government increased by 184 trillion won.
The ratio is, however, lower than those of most major countries. The ratio of its government debt (D2) to GDP for last year is estimated to be less than 40% as well, much lower than the OECD average of 116.3% for the same period.
Nevertheless, experts point out that what matters in evaluating the risk of the national debt is not the size but the pace of increase. The pace of increase has exceeded the nominal growth rate of the South Korean economy all the way since 2011. Specifically, it amounted to 7.2% in 2011, 5.4% in 2012, 10.5% in 2013, 8.9% in 2014 and 10.9% in 2015. During the period, the nominal growth rate stood at 3.4% to 5.3%.
According to their advice, the government needs to come up with some measures because South Korea’s fiscal conditions can deteriorate to a significant extent if this pace continues. “The rapid aging of the population is already underway, the number of taxpayers is on the decline and expenditures are on the rise,” the Korea Institute of Finance explained, adding, “A structural reform in view of such factors is urgent with regard
In the meantime, the government posted a total tax revenue of 345 trillion won last year along with 332.2 trillion won in total tax expenditures. In the 12.8 trillion won surplus, 4.8 trillion won is carried forward to this year and the unused is 11 trillion won. The amounts fell 1.2 trillion won and rose by 200 billion won from a year ago, respectively.
On an accrual basis, South Korea’s national assets and liabilities totaled 1,962.1 trillion won and 1,433.1 trillion won last year, respectively. The former increased 105.9 trillion won and the latter increased 139.9 trillion won year on year. The increase in liabilities was led by the issuing of government bonds (38.1 trillion won) and pension liabilities (92.7 trillion won).