Experts say, “Financial discipline should be clearly established after the coronavirus”
Since the outbreak of Corona 19, five additional administrations have been followed to overcome the crisis, increasing worries about debt debt.
The absolute level of sovereign debt is not yet high, but if it grows at the current pace, it can be difficult to control.
The world’s fastest low birth rate and aging population will inevitably lead to a surge in welfare demand.
Debt has inertia, so once it swells, it is not easy to reduce it.
The International Monetary Fund (IMF) evaluated the 60% of the government’s fiscal rules as an appropriate level with Korea’s appropriate debt ratio in January, but it is possible to break through this line in 3-4 years.
In the face of national crisis, finance is the last bastion of relief for people’s livelihoods.
If absolutely necessary, you have to boldly loosen your finances, but you also need to set up an exit strategy in preparation for the post-coronavirus.
It is the time when the will of the government and politics to manage the debt within an appropriate level is necessary by comprehensively judging the impact on foreign credit or financial markets, the reality of the national economy, and preparation for the future.
◇ Addition once every 3 months… A rush of national debt
At a state council meeting on the 2nd, the government decided on customized support measures worth KRW 19.5 trillion for corona-damaged industries and the vulnerable.
Of this, 15 trillion won will be raised as an additional budget, including 9 trillion and 900 billion won for issuance of government bonds.
Last year, the total amount of additional budgets of 66 trillion won was organized four times.
Deputy Prime Minister Hong Nam-ki said that this year, Korea’s national debt ratio will increase to 48.2%.
The national debt ratio will increase by more than 10 percentage points in two years from 37.7% at the end of 2019, and the total amount of debt is about 966 trillion won, putting 1,000 trillion won in front.
Narat debt, which was 741 trillion won based on the original budget in 2019, expanded to over 200 trillion won in two years.
The possibility of exceeding 50% of the national debt ratio within this year cannot be ruled out.
This is because the passport has opened the possibility of distributing disaster assistance to the whole of the country, and it may require several additional supplements due to the legislation of the Loss Compensation Act for corona-damaged industries.
The government predicted that the national debt ratio in the 2020-2024 national fiscal management plan will reach 58.6% by 2024.
When the government introduced fiscal rules in October last year, it decided to manage the debt ratio within 60% from 2025, but it is not going to be easy.
There is also an opinion that Korea’s national debt ratio has already reached 50% at the end of last year by international standards.
According to Professor Ahn Dong-hyun of the Department of Economics at Seoul National University, in Korea, the national debt ratio based on the D1 standard combined with the debt of the central and local governments is currently used, but the Organization for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF) Based on D2 (D1 + non-profit public institution debt), it has already exceeded 48% at the end of last year.
Professor Ahn says that the OECD average debt-to-equity ratio is 130% based on D2, but this has been increased by looking at a weighted average of 130% in the US and 260% in Japan, the key currencies. It warns that Korea’s debt-to-equity ratio is by no means a low level, with the average of the monetary countries at 53%.
◇ The problem is the rate of increase… “Strict fiscal rules should be established after the coronavirus”
According to the IMF, Korea’s fiscal mobilization to respond to the coronavirus last year was 3.4% of GDP, the 15th lowest among the 20 major countries.
The United States, Japan, the United Kingdom and Germany accounted for 11-16.7%, France and Italy were in the 6-7% range, and China (4.7%), Spain (4.1%), and the European Union (3.8%) were also higher than Korea.
It can be said that they have relatively saved their finances considerably.
Many experts agree that it is natural to loosen finances in the current crisis for people’s livelihood, and that fiscal soundness is not a problem at the moment.
However, as Deputy Prime Minister Hong pointed out at the briefing on the 2nd, we cannot be relieved that fiscal expenditures may increase rapidly due to the trend of slowing growth in the mid- to long-term, the arrival of an ultra-low birth rate, the advent of an ultra-aged society, and special circumstances in preparation for unification.
Seong Tae-yoon, professor of economics at Yonsei University, said, “I don’t think there is a problem with the absolute level of national debt yet. I can” he said.
Therefore, there were many opinions that finance should be mobilized only when absolutely necessary, not populism, and that the government and political circles should have a clear roadmap like Germany on how to secure fiscal soundness in the normal economy after the coronavirus.
The government established fiscal rules last year, but it is too loose.
Professor Park Ki-baek of the Graduate School of Taxation at the University of Seoul, president of the Korean Finance Association, said, “Debt level is not enough to be a problem for national credibility, but if the Korean economy is expected to return to its normal course next year in terms of mid- to long-term fiscal stability, the budget deficit will be reduced. “You have to give a clear message about what level to suppress,” he said.
Some advice was to strictly manage expenditures in the future, and to review tax increases if necessary.
Kim Jin-bang, professor of economics at Inha University, said, “The natural increase in welfare expenditure or the increase in structural financial burdens such as welfare expansion should be responded to by increasing taxation, etc.” “The national disaster subsidies should be refrained.”
Seok-jin Woo, a professor of economics at Myongji University, said, “The government said it would manage the national debt ratio at 60% after 2025, but what if it exceeds that level?” Will” said.
/yunhap news