Daily Management Review

South Korean Debt To Reach 50% Of GDP With Proposed Aggressive Spending Plan For 2022


South Korean Debt To Reach 50% Of GDP With Proposed Aggressive Spending Plan For 2022
A proposal for an aggressing increase in government spending was unveiled by South Korea's government on Tuesday for the last year of the presidency of Moon Jae-in's five-year term. This eliminated any chance of the government achieving a balanced budget even as the fiscal deficit of the country gets worse.
A record spending of 604.4 trillion won ($518.4 billion) next year is planned by South Korea, which is 8.3 per cent higher than the budgeted expenses for this current year, prior to the government announcing two emergency supplementary spending aimed to offer pandemic relief to households.
If the budget for next year is passed, it would hike the debt-to-gross domestic product (GDP) ratio of South Korea to 50.2 per cent – which will be the largest on record for the country.
"Our debt will exceed 50% (of the economy) in the medium-term, but, as we start to turn things around for a better fiscal standing we expect a sizable improvement in fiscal balance of payments next year," a budget official at the finance ministry said.
According to the ministry, South Korea expects the ratio at 58.8 per cent by 2025.
The left-leaning Moon Jae-in government has been forced to compromise on its fiscal goals because of the pandemic as it offered huge and ambitious relief packages to offset the economic hit of the Covid-19 pandemic through six extra fiscal outlays since early last year. When the government had taken office in 2017, the debt-to-GDP ratio of the country was at about 40 per cent.
Analysts viewed the budget for next year, unveiled on August 31, to be a balancing act between extensive funding badly required in social services for tackling an ageing economy and reducing income inequality, while not putting any additional burden on the finances of the country.
Funding for welfare and jobs and to cover the rising social expenditure with the fastest aging economy among the Organization for Economic Co-operation and Development (OECD) creating long term issues for the country, are the areas where about a third of the total expenditure, 216.7 trillion won, will be allocated.
Funding projected related to the environment to set the country on a path to achieve its carbon neutrality goal by 2050 will be done by an earmarked 11.9 trillion won, while the spending on national defense has been proposed to be 55.2 trillion won.
167.4 trillion won of bonds will be issued by the finance ministry it in 2022, the ministry said. The net increase in treasury bonds is projected at 94.9 trillion won.