Government to Postpone Announcement of Fiscal Rules Until After Chuseok

Scheduled for announcement in October after further discussion
There seem to be unresolved issues from coordination with the party

Prime Minister Chung Sye-kyun and Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki are attending the 'Extraordinary Cabinet Meeting' held on the 23rd at the Government Seoul Office in Jongno-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

[Sejong=Asia Economy Reporter Kim Hyunjung] The government will announce the 'Fiscal Rules' that specify appropriate national debt ratios and debt ratio standards after Chuseok. Although it was initially expected to complete related discussions and reveal the draft rules within this month, it is now scheduled to be announced in early October after additional review.

According to multiple government and National Assembly officials on the 29th, the Ministry of Economy and Finance is preparing Korean-style fiscal rules containing standards to be observed in fiscal operations such as revenue, expenditure, balance, and debt, and will announce them after Chuseok. Originally, the related content was to be finalized and announced before the holiday, but due to prolonged last-minute coordination and review, the timing has been pushed to October. The day before, Kim Yongbeom, the 1st Vice Minister of the Ministry of Economy and Finance, stated, "(Ahead of the fiscal rules announcement) the consultation process with the ruling party is in its final stage. We are doing the final work to be able to announce it within September."

The fiscal rules the government is preparing are likely to limit the increase rate of the debt ratio based on the year-on-year growth rate and to flexibly include specific indicators such as the national debt ratio in enforcement ordinances (Presidential Decrees) rather than laws. However, it is reported that detailed standards and requirements have not yet been finalized through coordination with the political circles.

This discussion has accelerated due to the rapidly worsening fiscal balance recently. Due to the COVID-19 pandemic, the government formulated the 4th supplementary budget (Supplementary Budget) for the first time in 59 years and provided large-scale support funds, causing the managed fiscal balance deficit ratio relative to Gross Domestic Product (GDP) to exceed 6% for the first time in history at 6.1%, and the national debt ratio soared to 43.9%. According to the Ministry of Economy and Finance, the national debt ratio is expected to reach 58% by 2024.

In the National Assembly, bills for fiscal soundness and amendments to the National Finance Act have also been proposed and are pending. The related amendments, mainly proposed by opposition parties, include provisions such as using all surplus funds to repay principal and interest of national debt if the total national debt exceeds 45% of GDP, or maintaining the managed fiscal balance deficit below 2% of GDP except in cases of war, large-scale disasters, or significant changes. Similar bills were also proposed in the 20th National Assembly but were abolished due to expiration of the term without agreement because of disagreements over necessity and appropriate levels.

Regarding this, a review report by a professional committee member of the National Assembly's Strategy and Finance Committee positively acknowledged the necessity of fiscal rules but expressed concerns that it might be difficult to respond to recent COVID-19 situations. Jeong Yeonho, the senior professional committee member of the Strategy and Finance Committee, explained, "Fiscal operation-related laws are operated separately for the central government, local governments, public institutions, and social insurance, making integrated fiscal management difficult," and added, "Through the enactment of the bill, comprehensive fiscal soundness policies can be promoted." However, he also noted, "In a situation where there is a need to actively respond to economic downturns due to aging and COVID-19, specifying fiscal rules in the law may make flexible responses of national finances difficult."