The International Monetary Fund (IMF) has assessed that South Korea's current national debt is at an appropriate level. However, it expressed concerns over the high level of household debt.
According to the transcript of a press briefing held in Singapore on the 29th, focusing on the recent economic outlook for the Asia-Pacific region published on the IMF website, Thomas Helbling, IMF Deputy Director for Asia-Pacific, stated, "I commend the intent and actions of South Korea's fiscal consolidation policy."
This was a response to a question about what aspects the IMF praised when it recently commended South Korea's fiscal rules and advised the country to maintain low national debt.
Earlier, Krishna Srinivasan, IMF Asia-Pacific Director, during his visit to Marrakech, Morocco on the 13th (local time) to attend the IMF-World Bank annual meetings, evaluated, "Since last year, South Korea has been moving towards reducing expenditures, which is the right direction."
Krishna Srinivasan, Director of the Asia and Pacific Department at the International Monetary Fund (IMF) [Photo by Yonhap News]
Director Srinivasan explained, "South Korea's growth is slowing due to external demand factors, so maintaining fiscal soundness is more important than anything else," adding, "Not only monetary policy tightening but also fiscal tightening must be supported."
The IMF recommends reducing deficits by withdrawing the increased government fiscal support provided during the COVID-19 period, and positively evaluated South Korea for maintaining a fiscal soundness stance.
In fact, South Korea's national debt increased by about 100 trillion won annually during the COVID-19 period, but it is expected to decrease to 67 trillion won this year and 62 trillion won next year.
Deputy Director Helbling said, "The current level of South Korea's national debt is generally appropriate and should be maintained as is."
However, the IMF expressed concerns about South Korea's household debt.
Household debt relative to disposable income in South Korea averages 160%, which is quite high even among the upper group of the Organisation for Economic Co-operation and Development (OECD).
The IMF advised establishing macroprudential policies to manage risks arising from the increase in household debt.
To this end, it explained that it is necessary to maintain households' ability to manage risks and ensure the quality of household assets.
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