When Costs for Unification, Population Aging Are Included
The ruling Democratic Party of Korea said that the government has sufficient fiscal room with regard to its efforts to maintain fiscal soundness. “The average debt ratio of OECD member states is 110 percent and what we need now is a proactive response to a crisis although it is indeed important to carefully look into fiscal risk factors,” lawmaker Kim Yong-jin remarked.
At present, South Korea’s debt-to-GDP ratio is much lower than the OECD average. According to Deputy Prime Minister Hong Nam-ki, the post-second supplementary budget ratio is estimated at 41.4 percent and the post-third ratio is estimated at 44 percent.
Still, the ratio does not reflect potential spending related to a change in population structure and inter-Korean reunification. “The debt ratio might have already topped 100 percent considering the potential spending,” the Ministry of Economy and Finance explained, adding, “Government fiscal operation observed with those excluded can be misleading.”
Another concern is that South Korea’s fiscal spending or debt may increase at an exponential rate. For reference, Japan’s debt ratio gradually increased before it topped 100 percent in 1997. However, the ratio doubled in 12 years and reached 238 percent in 2018.