Fiscal Deficit to GDP Ratio Deteriorating
While major world economies such as the United States, Germany, and Canada have begun to operate programs to tighten their fiscal spending, the Korean government is sticking to its expansionary policy stance, raising concerns that its already unstable fiscal soundness may deteriorate.
Major advanced countries such as Germany, France, the United States and Canada have begun operating fiscal normalization programs, according to a report released by the Korea Institute of Public Finance on June 13.
In particular, the German government set the upper limit of its structural deficit at 0.5 percent of its gross domestic product (GDP) as a medium-term goal in its stabilization program for 2021 announced in April. It announced its tight fiscal policy to lower the ratio of the government's general fiscal deficit to GDP from 9 percent in 2021 to 3 percent next year. It plans to further lower the ratio to
1.5 percent in 2023 and 0.5 percent in 2024 before achieving fiscal balance (0 percent) in 2025
France also laid out a plan to normalize its finances through a fiscal stabilization program between 2021 and 2027. The government has decided to limit the annual growth rate of public spending to 0.7 percent between 2022 and 2027. Through this, the French government proposed a plan to lower the ratio of its budget deficit to its GDP from 9 percent in 2021 to 5.4 percent next year, 4.4 percent in 2023 and 3 percent over the following three years.
Canada declared that it will end most of its economic assistance in response to COVID-19 by September 2021. It also proposed a plan to reduce the fiscal deficit to GDP ratio from 16.1 percent in 2020 to 6.4 percent in 2021.
The United States plans to lower the ratio of its fiscal deficit to GDP from 16.7 percent in 2021 to 7.8 percent next year.
On the other hand, the Korean government drew up the first supplementary budget worth 15 trillion won earlier in 2021, following four supplementary budgets (about 64 trillion won) in 2020, and is still considering a second supplementary budget worth around 30 trillion won. Korea's ratio of its operational fiscal deficit to GDP soared to 6.1 percent in 2020, and is expected to stand at 6.3 percent in 2021. If an expansionary fiscal stance is maintained next year, the deficit ratio is expected to eclipse those of major foreign countries.