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| Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho speaks as he presides over an emergency meeting of economy-related ministers at Government Complex Seoul, Tuesday. Yonhap |
By Yi Whan-woo
The government said Tuesday that it will place a 3-percent ceiling on the ratio of fiscal deficit to gross domestic product (GDP) as part of a shift to a belt-tightening mode to improve fiscal health, in contrast to the pandemic-era stimulus policy embraced by the previous Moon Jae-in administration.
It also said it will bring down the fiscal deficit-to-GDP ratio below 2 percent if the amount of national debt exceeds 60 percent of GDP.
A fiscal deficit refers to a shortfall in the government's revenue compared to spending in a given year, while national debt refers to the accumulated amount of borrowing by the government to make up for such shortfalls over several years.
Announced during an emergency meeting of economy-related ministers, the Yoon Suk-yeol administration's plan to curb the fiscal deficit is a part of envisioned regulations being legislated to curb snowballing national debt.
Korea saw its fiscal surplus reach 1.3 percent of the corresponding year's GDP in 2017 and 1.6 percent in 2018.
But it posted a fiscal deficit for the next three years, which, compared to annual GDP, was 0.6 percent in 2019, 3.7 percent in 2020 and 1.5 percent in 2021.
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The national debt soared from 660.2 trillion won ($479.9 billion) in 2017 to 970.7 trillion won in 2021, and is anticipated to reach 1,068.8 trillion won this year, which will account for 49.7 percent of GDP.
"The introduction of the regulation that controls and manages the total amount of the budget is necessary to ensure financial soundness," Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said as he presided over the meeting at Government Complex Seoul.
He noted that there were attempts to legislate fiscal regulations, but such efforts were not successful due to a lack of understanding among politicians of the urgency of the matter.
"The need to lay the legal groundwork for financial soundness has become increasingly critical," Choo added.
"We will work closely with the National Assembly for a swift enactment this year," he added, stressing that the regulations, if approved, will be applied in implementing the 2023 budget.
The government allocated 639 trillion won for the 2023 budget, down 6 percent from this year's total expenditure including two rounds of extra budgets, aiming to put the brakes on the rising debt-to-GDP ratio and reducing it to 49.8 percent.
"It will be a painful but unavoidable path for us to set tough principles on fiscal health," Choo said, adding that fiscal health is "the first step for Korea to take a leap and become a wealthy nation for all."
