ED Specter of twin deficits

Government cannot cure deepening diseases with lax posture

With Korea recording a fiscal deficit for four years in a row, concerns are growing that the country might continue to suffer a trade shortfall. According to data released earlier this month by the Ministry of Trade, Industry and Energy, Korea chalked up a trade deficit of $1.71 billion last month. The nation's exports increased 21.3 percent from the same month of 2021, but its imports surged 32 percent. The trade balance was in the red in December and January and returned to a surplus in February and March but went back to a deficit again in April.

Faced with a deficit in January, officials said it was a temporary phenomenon stemming from the surging prices of energy sources. However, the shortfall in May, when the energy demand usually hits bottom, proved their judgment wrong. According to the Korea Institute of Industrial Economics and Technology, the annual trade deficit is expected to reach $15.8 billion in 2022. The projected figure could be larger than the $13.3 billion gap recorded amid the global financial crisis in 2008.

As a country that imports raw materials and intermediate goods for processing and reselling, Korea usually does not incur a trade deficit. If the nation has sustained a trade gap for the first time in 14 years, it needs to look deep into what has gone wrong with the economic structure. However, the government does not appear to be alarmed, merely claiming that other countries with a high dependency on imported energy, such as Japan, Italy and France, are also suffering from trade deficits.

Due to the previous Moon Jae-in administration's populist policies, the consolidated fiscal balance, which first swung to a deficit of 12 trillion won ($9.62 billion) in 2019, rose to 30.4 trillion won in 2021 and is expected to top 70 trillion won this year. Accordingly, the possibility of the twin deficits becoming a reality has increased. If such a trend is prolonged, an economic crisis could loom large with a fall in international credit standing. Therefore, President Yoon Suk-yeol and his economic team should take bold measures to increase exports and maintain fiscal health with a profound sense of crisis.