Budget Policy Office: "National Debt to GDP Ratio, 44.5% This Year → 158% by 2060"

[Asia Economy Reporter Park Cheol-eung] The National Assembly Budget Office projected that the national debt ratio to Gross Domestic Product (GDP) will soar to 44.5% this year and reach 158% in 40 years.

In a long-term fiscal outlook report published on the 28th, the Budget Office stated, "Under the baseline scenario assuming the current system is maintained throughout the projection period, the national debt ratio to GDP is projected to rise from 44.5% in 2020 to 158.7% in 2060 and 187.5% in 2070."

Since the Budget Office used its own projections for GDP, revenue, and expenditure, the national debt ratio for this year differs by 1 percentage point from the government’s figure (43.5%).

The Budget Office explained, "The reason for the rapid increase in the national debt ratio is that total revenue, including national tax revenue, is expected to grow at a rate similar to the nominal growth rate during the projection period, while total expenditure is expected to increase at a higher rate than the nominal growth rate. The high growth rate of total expenditure is mainly due to the rapid increase in mandatory spending related to various welfare programs such as public pensions and basic pensions."

As a measure to slow the increase in national debt, the office analyzed a scenario controlling the growth rate of discretionary spending, which is relatively easier to reduce. If discretionary spending is controlled to increase only at the rate of consumer price inflation each year, the national debt ratio is projected to decrease to 99.3% by 2070.

The importance of fiscal targets was also emphasized. For example, assuming a goal to maintain the national debt ratio at around 80% by 2070, it was analyzed that an annual improvement of 2.54% of GDP in the primary fiscal balance is required starting from 2021. Converted based on this year’s GDP, this means approximately 49 trillion won in additional revenue or expenditure cuts are necessary.