Choo Kyung-ho: "If Debt Ratio Exceeds 60%, Manage Fiscal Balance to Reduce GDP Deficit Within -2%"

The 'Fiscal Rules Conference' Co-hosted by the Korean Association for Public Administration and the Korea Institute of Public Finance

Deputy Prime Minister for Economy Choo Kyung-ho is attending the Fiscal Rules Conference held at the Korea Deposit Insurance Corporation on the 18th. 2022.8.18 Photo by Yonhap News

[Asia Economy Sejong=Reporter Son Seon-hee] Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho stated on the 18th regarding the fiscal rules promoted by the government, "The deficit ratio of the management fiscal balance to Gross Domestic Product (GDP) will not exceed -3%, but if the national debt ratio exceeds 60%, the deficit will be reduced to -2% so that the national debt ratio converges within 60% in the mid to long term."

Deputy Prime Minister Choo attended the 'Fiscal Rules Conference' held jointly by the Korean Association for Public Administration and the Korea Institute of Public Finance at the Korea Deposit Insurance Corporation in Jung-gu, Seoul, in the afternoon and said in his congratulatory remarks, "We will secure binding force by specifying the rule standards in law and implement the rules immediately upon the passage of the law." However, he added, "In unavoidable situations where the fiscal role must be active, such as preparing supplementary budgets due to economic crises, the application of the rules will be exempted, but once the crisis ends, we will immediately return to the rule standards and establish sound fiscal measures to ensure that sound finance and the role of finance are properly balanced."

It is expected that the national debt will approach about 1,070 trillion won by the end of this year. During the past Moon Jae-in administration, the expansionary fiscal policy caused an increase of more than 400 trillion won over five years. A fiscal deficit of around 100 trillion won is also pointed out as a risk factor.

Deputy Prime Minister Choo expressed concern, saying, "Recently, international credit rating agencies have shown caution about our fiscal outlook, and there is a possibility that fiscal policy will no longer be a positive factor for our credit rating." In particular, he said, "All social insurances will turn to deficits within the next 20 years, and the International Monetary Fund (IMF) predicts that our country's debt ratio will exceed 100% by 2050, increasing concerns about the mid- to long-term fiscal situation," adding, "We cannot leave a debt-ridden republic to our young generation. From now on, we must tighten our belts in fiscal spending and firmly establish a sound fiscal policy," emphasizing the necessity of introducing fiscal rules.

Earlier, the government announced a new fiscal rule direction to control the size of the management fiscal balance within -3% of GDP at the National Fiscal Strategy Meeting held last month. To this end, stronger expenditure restructuring will be implemented in the preparation process of next year's budget, which is currently in its final stages.

Deputy Prime Minister Choo said, "We will conduct unprecedentedly strong expenditure restructuring and prepare next year's main budget at a significantly lower level than this year's supplementary budget, including the revised budget (679 trillion won)," adding, "To eliminate inefficiencies caused by overlapping fiscal project evaluations, we will standardize evaluation items and timing of 11 performance evaluation systems operated by six ministries, and introduce expenditure restructuring principles into the performance evaluation system by mandatorily cutting a certain percentage of the budget for underperforming projects."

Regarding the exemption from preliminary feasibility studies, which reached about 120 trillion won during the previous administration, stricter standards will be applied to minimize such exemptions.

Quoting the proverb, "A farmer may starve but dies after harvesting seeds," Deputy Prime Minister Choo emphasized, "We cannot leave an empty granary to our children just because it is difficult now. Fiscal rules are exactly about us strictly controlling the granary door so that we do not use up all the seeds for future generations."

Especially since it is a matter of passing a bill, he appealed to the National Assembly, saying, "Concerns and worries about fiscal soundness and future generations are not divided by political parties. Fiscal rules are not a matter of choice but a historical responsibility entrusted to us, and it is not something to be postponed or ignored under any circumstances."

Deputy Prime Minister Choo concluded his congratulatory remarks by saying, "We plan to finalize the fiscal rules soon and promote the legislation of fiscal rules," and "The government will also do its best to build and spread consensus among the public and the National Assembly for the legislation of fiscal rules."