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Korea’s national debt to gross domestic product (GDP) ratio is expected to rise from 40% this year to 99% in 2045 and then drop to 80% in 2060. The Ministry of Strategy and Finance predicted this by reflecting the trend of a sharp decline in population and a decline in the rate of economic growth in the long-term financial prospects 2020-2060. The government is emphasizing Korea’s fiscal soundness, citing that the Organization for Economic Cooperation and Development (OECD) has an average national debt ratio of 108%, but the problem is the rate of increase in Korea’s national debt and the attitude of the government to manage it.
It took 12 years for the country’s national debt ratio to rise 10 percentage points from 25.9% in 2005. However, the Moon Jae-in administration increased 10 percentage points in just four years. I am concerned that this trend will continue in the future. This is the second time since 2015 that the government has published a long-term financial projection for the next 40 years under the National Finance Law. In 2015, the national debt ratio in 2060 was expected to be 62.4%, but this time it was adjusted from 64% to 81% depending on the population and growth rate scenario. It is noted that if the population declines and the growth rate continues to slow, the national debt ratio will peak at 99% in 2045, but it is noted that the outlook is too optimistic. The Ministry of Strategy and Finance developed this outlook on the premise of continuing real economic growth at an annual average of 2.3% until 2030, but the government’s growth rate and employment outlook have already fallen several times from expected in recent years, losing confidence. Easier perception and an optimistic outlook are a problem. The government refers to the OECD average national debt ratio, but the European Union has established rules to ensure that the debt ratio stays within 60% in member states. For Korea, which is classified as a “small open economy,” managing domestic credit ratings is even more important.
In this long-term fiscal projection, the government announced the need for reforms such as the introduction of fiscal rules and the national pension health insurance with the objective of managing the national debt ratio at 60% in 2060. If you do not want to pass the debt to the next generation, the government should not be alone looking at the political world. Fiscal rules must first be introduced with firm will.
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