Fiscal Rules Urgently Needed
The Korea Economic Research Institute said in its report on Sept. 16 that South Korea’s government spending-to-GDP ratio increased by 1.4 percentage points in the period of 2010 to 2018, the second-highest in the OECD behind Colombia’s 1.8 percentage points. The institute also said that only seven countries showed that trend in the entire group and some fiscal rules to function as a brake are urgently needed for South Korea.
South Korea’s government spending-to-GDP ratio is continuing to increase. It reached 15.8 percent in 2018, 16.5 percent in 2019 and 18.4 percent in the first half of this year. It already exceeded the levels at which South Korea’s economic growth is maximized (15.6 percent) and its unemployment rate is minimized (18.3 percent).
The Ministry of Economy and Finance, in the meantime, announced on Sept. 1 that South Korea’s national debt-to-GDP ratio for 2024 is estimated at 58.3 percent. The ratio, which already amounts to 43.5 percent, is likely to reach 50.9 percent in 2022. Its fiscal deficit not reflecting social security funds is predicted to amount to 127.5 trillion won in 2024, equivalent to 5.6 percent of the GDP. In other words, the country’s fiscal soundness is already deteriorating.
The OECD announced on Sep. 16 that the South Korean economy would show a negative growth of 1 percent this year. The figure is 0.2 percentage point higher than its June estimate, the highest in the OECD, and the second-highest in G20. However, the upward adjustment has been halved compared to August due to the second wave of COVID-19 that started in the middle of last month.