Input 2021.04.06 10:00
Revision of management standards for “speeding up debt ratio”…Early 40% → Late 50% in 2024
The era of 1,000 trillion won in national debt
“Financial soundness is good” government, excessive optimism… “Korea’s secret currency bureau, the only thing to believe is credit”
The government’s debt soared to 846 trillion won as of the end of last year, as the administrative fiscal balance, which shows the soundness of the country’s livelihood, recorded a deficit of 112 trillion won, showing the soundness of the country’s livelihood through the provision of three emergency disaster subsidies. At the time of filing this year’s budget proposal, the government’s debt was more than 7 trillion won more than the 839 trillion won projected by the government. This means that sovereign debt is growing faster than the government expected.
While the prolonged economic recession has drastically reduced tax revenues, fiscal soundness indicators are deteriorating faster than expected as government spending surged due to an expanding fiscal policy to overcome the novel coronavirus infection (Corona 19). The national debt reached an all-time high of 1985 trillion won. The national debt is the sum of the national debt owed by the central government, the local government debt, and the pension burden (pension provision debt) to be paid to civil servants and soldiers.
According to the 2018-2022 National Fiscal Management Plan, which was created for the first time after the Moon Jae-in administration was established, the time when the national debt will reach 846 trillion won is expected in early 2022. However, last year’s national debt, two years ahead of this, exceeded the forecast. At the time of the Moon Jae-in administration’s inauguration, last year’s national debt was 79 billion won. The ratio of national debt to gross domestic product (GDP) was expected to be 40.2%, but the ratio of national debt to last year’s settlement was 44%. This is 0.5%P (points) higher than the 43.5% proposed in the 2020-2024 National Fiscal Management Plan announced last year.
The problem is that, like last year, there is a high possibility that the financial aid cycle such as disaster subsidies will be repeated again this year. In addition, the Democratic Party and the government organized an additional budget of 15 trillion won to provide emergency disaster assistance amounting to 20.7 trillion won ahead of the 4/7 re-election. To this end, it issued 9.9 trillion won worth of deficit treasury bonds. If the self-employed person’s loss compensation system and the national subsidies promoted by the ruling party are implemented, there is a possibility that the national debt will exceed 1,000 trillion won this year.
According to the report of’National Settlement for FY2020′, which the government deliberated and resolved at the State Council on the 8th, last year’s national debt was 1985 trillion and 300 billion won. It increased by 241.6 trillion won (13.5%) from 2019 (1743 trillion won). The national debt increased by 122.3 trillion won to 84.89 trillion won. The combined fiscal balance, which is the difference between fiscal income and expenditures collected by the government for one year, recorded a deficit of 71.2 trillion won. The management fiscal balance, taking into account the payment of the national pension, recorded a deficit of 112 trillion won. The deficit increased by 57 trillion won from last year.
The reason for the steep increase in national debt due to the rapid increase in the fiscal deficit is that expenditures have increased sharply due to the expansion of fiscal management due to the increase in various welfare allowances, as well as the addition of eight additional budgets since the inauguration of the government, such as the overcoming of Corona 19. to be.
This rate of increase in national debt far exceeds the government’s projections. In the 2020-2024 National Fiscal Management Plan, which was announced at the time of filing this year’s budget in September last year, it announced government debt at 839 trillion won and 945 trillion won at the end of last year and at the end of this year.
However, the actual national debt, reflecting the third supplement of last year, exceeded the government’s forecast by more than 7 trillion won at 84.89 trillion won. As of the end of this year, the national debt forecast was also 965 trillion won, exceeding last year’s forecast by 20 trillion won, considering the first supplementary supplement for the 4th disaster support payment.
The point of surpassing KRW 1,000 trillion in national debt is also gradually accelerating. Initially, the government suggested the time to break through the state debt of 1,000 trillion won at the end of next year, when the term of office of the Moon Jae-in administration (May 2022) ends. Even this is about a year ahead of 2023 as suggested in the forecast released in 2019. However, the government debt may exceed 1,000 trillion won this year if the additional supplementary measures for self-employed people’s loss compensation and national citizens’ comfort fund promoted by the Democratic Party are repeated.
The ratio of national debt to gross domestic product (GDP) is also on the rise. In 2018, the early days of the Moon Jae-in administration, the government predicted that the national debt ratio would remain at 40.9% at the end of this year and 41.6% next year. However, in the first supplementary bill this year, the government expected the national debt ratio to jump to 48.2% at the end of this year. It is also 1.5%p higher than this year’s debt ratio forecast (46.7%) announced last year.
The market is strongly predicting the possibility of exceeding 50% of the national debt ratio this year. This is because the loss compensation system from the ruling party in power and the payment of the national consolation fee have been announced. A high-ranking official from the private economic research institute said, “In addition, the market predicts that there is a high possibility that this year’s supplementary administration will be promoted more than twice this year because the Democratic Party has pledged to promote the self-employed loss compensation system after the 4/7 re-election, and the national citizens’ compensation payment, etc. It is only a matter of time before the debt ratio breaks through 50%,” he said.
Korea’s national debt ratio was 36% in 2016, before the Moon Jae-in administration was inaugurated, but it has risen sharply since the Moon Jae-in administration was inaugurated. It is rising sharply every year to 38.2% in 2018 and 44.0% in 2020. If the forecast at the end of this year (48.2%) is reduced, it will increase by more than 10%P in five years. Economic experts have determined that the government debt ratio, which is increasing at the current rate, is’speeding’.
Seong Tae-yoon, professor of economics at Yonsei University, said, “For decades, the national debt ratio has not been 40%, but there is a problem that the rate of increase is so fast that it rises more than 10%P in just five years.” “There are many countries that have had a lot of debt, and Korea’s debt is low and then increasing at a very rapid pace. Even if we look at the fiscal soundness in the long run after 2025, it is necessary to adjust the speed in advance.”
◇ If the’Pinocchio financial outlook’ is wrong, change it… “Korea’s secret currency bureau, the only thing to believe is creditworthiness”
The government’s fluctuating attitude toward fiscal soundness is also on the verge of criticism. In relation to the management of the actual national debt ratio, the government has changed its language several times. In 2018, the government said it would manage the debt ratio at the “low 40% level.” However, after a year later, the government changed the word to “mid-40% level”, and last year came up with a forecast that it would manage to be within the level of the 50% level in 2024, not the current point. As media reports continued on the rapidly increasing debt ratio, the management goal was set to 2024.
However, the government has not been aware of this serious situation. In the 2020 national settlement briefing on the 4th, the financial officials of the Ministry of Finance responded too optimistically, such as “The fiscal soundness of our country is good”, “International organizations and credit rating agencies also rate it well”, and “The rate of debt growth is very good.” I put it out.
However, experts point out that the government should proactively propose measures to secure fiscal soundness after responding to the corona crisis and make efforts to form a public consensus. This is because fiscal management, in which the national debt increases by more than 100 trillion won per year, cannot be sustained.
A senior official at a private economic research institute said, “To cope with the corona crisis, all countries around the world are responding by increasing fiscal expenditures, but major European countries such as Germany are suggesting a direction to normalize government spending, which increased after the crisis.” It is important for Korea, a non-key currency country, to maintain external credit, so efforts to normalize the deteriorated fiscal soundness should be preemptively made, he pointed out.
Another official from an economic organization said, “Only when the government shows a firm philosophy and conviction on maintaining fiscal soundness, it can even respond to the pressures of politicians to spend fiscal expenditures for election pledges.” Seeing is irresponsible.”