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Korea's debt growth 'strictly managed': budget minister
Budget Minister Park Hong-keun speaks during a press conference at the Government Complex Sejong, Tuesday. Courtesy of Ministry of Planning and Budget
By Jun Ji-hye
The International Monetary Fund’s (IMF) recent projection that shows Korea among the countries with the fastest-rising debt-to-gross domestic product (GDP) ratios may be overstated, as the government retains sufficient fiscal capacity and control, Budget Minister Park Hong-keun said Tuesday.
At a press conference, Park downplayed the global lender’s concerns over the rapid pace of debt growth, stressing that it is being strictly managed through spending restructuring and enhanced fiscal efficiency.
“Projections are inherently uncertain, as they depend on economic conditions, policy responses and timing. IMF forecasts have often exceeded actual outcomes in the past,” Park said. “Korea’s debt level remains comparatively low among major economies. Fiscal sustainability should be assessed not only by the ratio itself but also by the country’s ability to manage it.”
Park added that the government has already carried out spending cuts worth about 27 trillion won ($18 billion) this year — the largest on record — and is preparing additional measures, including reducing mandatory spending by 10 percent and discretionary spending by 15 percent, in a bid to reinforce fiscal discipline.
In its latest Fiscal Monitor analysis, the IMF forecast that Korea’s general government debt will increase from 54.4 percent of GDP this year to 56.6 percent next year, exceeding the average for advanced non-reserve currency economies.
The projected 56.6 percent ratio stands about 1.6 percentage points above the 55 percent average for 11 advanced non-reserve currency economies comprising Korea, the Czech Republic, Denmark, Hong Kong, Iceland, Israel, New Zealand, Norway, Singapore, Sweden and Andorra.
General government debt includes liabilities held by central and local governments as well as nonprofit public institutions. Korea’s ratio had remained below the peer average until this year.
IMF also identified Korea and Belgium as countries likely to see the sharpest increases in debt ratios over the next five years, projecting Korea’s figure to reach around 63 percent of GDP by 2031, while Belgium’s is expected to exceed 122 percent.
Park stressed that boosting economic growth will be critical to ensuring fiscal sustainability.
“Well-timed fiscal spending can drive growth, expand the tax base and ultimately create a virtuous cycle for public finances,” he said.
Regarding the use of excess tax revenues, he said they would be allocated in line with legal procedures, including for repaying public funds and reducing government debt.