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Finance Minister Hong Nam-ki attends press briefing on the government`s fiscal soundness plan at the Sejong government complex on Monday. (Yonhap) |
A day after South Korea’s measures to ensure fiscal soundness for 2025 drew immediate flak from experts and the public alike for its time frame and "loopholes," the nation’s fiscal chief came to the defense of the rules Tuesday.
The Ministry of Economy and Finance announced Monday that it aims to maintain the national debt-to-gross domestic product ratio below 60 percent, and its consolidated fiscal balance at minus 3 percent in 2025. The rules are to be exempted in a time of crisis, like the current COVID-19 pandemic.
This drew mixed reactions from experts, with critics saying that the time frame indicates that the Moon Jae-in administration is shifting the responsibility and weight of the debt to the next administration and future generations.
Addressing the criticisms, Deputy Prime Minister and Finance Minister Hong Nam-ki told reporters in an unscheduled briefing Monday that other economies, including Germany, have taken similar amounts of time or longer to implement fiscal soundness measures.
"The actual time frame that the measures would be adopted from is the 2025 fiscal year, but it would be ‘upheld’ in 2022 to 2023 as well," he said.
"Developed countries also took four to five years to completely adopt the rules," he added.
On criticism of the 60 percent ratio bar, the government believes the debt-to-GDP ratio will grow due to accumulation, Hong said.
Critics have said that the rules contain loopholes that allow the government to spend taxpayers’ money too freely. They do not require the government to strictly keep both debt-to-GDP and the consolidated fiscal balance as stated -- if debt-to-GDP remains below 60 percent, the consolidated fiscal balance can exceed minus 3 percent.
"There have been criticisms that the 60 percent ratio is too 'loose,' ... but we believe it would grow to 50 percent from the current 40 percent due to accumulation," the fiscal chief explained.
The debt-to-GDP ratio is now estimated to stand at 43.9 percent, compared to 38.1 percent last year, factoring in the government’s decision to draw up four extra budgets worth a combined 67 trillion won ($57.9 billion) this year to combat the coronavirus risks. The government forecasts that the ratio will surge to 55 percent and 58.6 percent in 2023 and 2024, respectively -- well below the 60 percent target the government has set.
Of not legalizing the measures, Hong said the government has "not ruled out" the possibility, but stressed that such a move would reduce flexibility of the measures.
Though the rules await parliamentary approval, the government is apparently reluctant to legalize it, unlike other economies that have written similar rules into their constitutions, including Germany.
"The minus 3 percent consolidated fiscal balance means that the government has no intentions of tightening the belt on spending," Seoul National University economist Kim So-young said.
“Maintaining such a figure as the debt-to-GDP figure reaches 60 percent means that the government just isn’t willing to manage its fiscal soundness,” he added.
Hit by the coronavirus outbreak, Asia’s fourth-largest economy has stumbled into a recession, as its GDP shrank 3.3 percent in the second quarter after a 1.3 percent on-quarter retreat three months earlier.
By Jung Min-kyung (
mkjung@heraldcorp.com)
