Lee Chang-yong IMF Asia-Pacific Director: "Claims that expanding fiscal spending is no problem are irresponsible"

[Asia Economy Reporter Jang Sehee] Lee Chang-yong, Director of the Asia-Pacific Department at the International Monetary Fund (IMF), said on the 16th, "It is irresponsible to say that since the national debt-to-GDP ratio is low at around 40%, there is room to spend freely."

Director Lee made these remarks at an online conference hosted by the Korea Capital Market Institute on the theme of "Economic Environmental Changes and the Role of Finance in the Post-COVID Era," expressing concerns about the potential deterioration of fiscal soundness.

He emphasized, "How the increased fiscal spending in response to COVID-19 is used is very important," adding, "While short-term increases in fiscal expenditure are inevitable under the current circumstances, increasing structural spending such as expanding public sector jobs will pose a significant burden on fiscal health in the medium to long term."

He continued, "Considering Korea's rapid aging, even if the current social security system including the national pension is not expanded, the national debt ratio will reach 50% by 2030 and 100% by 2050," adding, "No politician would want to raise taxes, but establishing fiscal rules is urgent, and discussions are needed on finding a compromise between welfare and tax increases at some level."

Director Lee pointed out that global liquidity expansion has caused asset prices worldwide to soar significantly, and warned that attention should be paid to the possibility of a hard landing with a sharp price drop afterward.

He said, "It would be good if vaccine development is completed by the end of the year, but if it is delayed, the market could be disappointed, and a significant adjustment in asset prices cannot be ruled out." He also noted, "The corporate default rate is the highest since the 2009 global financial crisis," adding, "Although the low interest rate environment might suggest no major problems, we cannot ignore concerns about the rising default rate."