By Cho Jin-seo
The International Monetary Fund and Korea’s state research agency have reported that the South Korean government’s debt position is one of the most sustainable among OECD nations.
The Korea Institute of Public Finance (KIPF) said Tuesday that Korea came first in its rankings of fiscal soundness.
The report supplements a similar conclusion from the IMF last week that Korea belongs to the safest group in terms of government debt.
“South Korea’s government debt-GDP ratio is low compared to that of economically advanced nations. It also has good marks in three other criteria, such as the difference between the growth and interest rates,” the report said.
The KIPF rankings were produced by studying three factors budget balance, net debt, and the difference between GDP growth and interest rates.
Korea was ranked the fifth, fourth and third best in the respective criteria, and was the overall winner, the KIPF said.
Sweden, Finland, Australia and Switzerland followed on the list.
The IMF, too, has put Korea in the elite group of nations able to manage their public debt.
“Among the advanced economies, Australia, Denmark, Korea, New Zealand, and Norway generally have the most fiscal space to deal with unexpected shocks ― although of course they, too, must be mindful of future fiscal pressures,” it said.
Many countries are worried that their national budget is becoming seriously unsustainable. The recent financial crisis aggravated the problem, as countries borrowed more and spent more to stimulate the economy.
Korea is not entirely free from concerns. Though the budget balance and net debt ratios are considerably low, the pace they have increased at is alarming.
The IMF has warned that this is a general phenomenon that countries have become less frugal.
“General government debt in the G20 advanced economies surged from 78 percent of GDP in 2007 to 97 percent of GDP in 2009 and is projected to rise to 115 percent of GDP in 2015,” it said. “High public debt is due not only to the financial crisis, but also to weak fiscal policy over the preceding decades, when debt levels ratcheted up during hard times but failed to fall in better years.”