Gov't positioned to manage fiscal soundness: finance minister

Deputy Prime Minister and Finance Minister Hong Nam-ki, right, attends a virtual meeting with Fitch Ratings officials at the Sejong Government Complex, July 5. Courtesy of Ministry of Economy and Finance

Hong says economy is recovering faster

By Lee Kyung-min

Deputy Prime Minister and Finance Minister Hong Nam-ki reiterated that Korea will continue its stringent management of government debt, as part of its long-term goal of maintaining fiscal soundness, the finance ministry said Tuesday.

The comments were made during the ministry's annual meeting with Fitch Ratings, a global credit rating agency.

The top policymaker stressed Korea's government debt-to-GDP level will be reduced, as the county's second extra budget of 33 trillion won ($29.1 billion) will be drawn without debt-financing and part of the debt has been repaid.

Continued efforts will be made, he added, to comply with fiscal soundness measures to be enforced in 2025, defined as seeking a balance between the government debt-to-GDP ratio being kept under 60 percent and the country's consolidated fiscal deficit being limited to less than 3 percent of the country's GDP.

This is in line with the ministry's policy outlined last year, whereby a deficit of up to 4 percent of the GDP will be allowed in limited situations following an economic crisis. An economic crisis is defined by a clear slowdown, as illustrated by a drop in industrial output and employment data.

Korea's government debt-to-GDP ratio with the second extra budget factored in was revised this year to 47.2 percent from 48.2 percent. The forecast was revised to 49.9 percent from 52.3 percent for 2022, to 52.3 percent from 56.1 percent for 2023 and to 54.7 percent from 59.7 for 2024.

Hong said that although the number of new COVID-19 infections has been rising recently, it is under manageable control compared to other countries, and does not pose a significant risk to the prospects of economic recovery.

The finance minister said the Korean economy is recovering faster and stronger than expected, driven by robust exports and investment, a reason why it forecasts that the country will grow 4.2 percent this year.

Data from the Ministry of Trade, Industry and Energy showed Korea's exports rose to $54.8 billion in June, up 39.7 percent year-on-year, with the month-on-month export volume increasing for eight months straight.

The monthly figure surpassed the $50 billion mark for the past four months, leading to the country's exports exceeding $300 billion won in the first six months of this year, up 26.1 percent from a year earlier.

The second extra budget he said will focus on ways to recover consumption and employment to pre-crisis levels.

The continuation of strict social distancing rules for another week will not lead to a new series of gathering bans, reduction of business hours or movement bans.

Fitch is expected to announce Korea's credit rating as early as August or September at the latest, after concluding its annual consultation schedule with the country's government ministries and state-run organizations by Aug. 8.

Currently, Fitch's credit rating for Korea is AA-, and its rating outlook is “stable.”