November 30, 2024

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Signboard of the Ministry of Economy and Finance (Yonhap)

SEJONG -- The Yoon Suk-yeol administration will drastically reduce South Korea’s fiscal deficit starting from next year by restricting expansionary policies to improve the nation’s fiscal soundness.

According to government officials on Monday, the Ministry of Economy and Finance has set a goal of bringing the ratio of fiscal deficit to gross domestic product to below 3 percent in its national budget plan for 2023. It would be the first time in four years it has fallen below that level.

In addition, the Finance Ministry plans to further lower the fiscal deficit-to-GDP ratio to about 2 percent if the ratio of national debt to GDP exceeds the 60 percent mark.

The ministry will finalize the plan after consulting the matter with the ruling People Power Party and President Yoon within this week.

The government has been waiting for parliamentary approval for the passage of the bill on strict management of fiscal deficit.

The ratio of fiscal deficit to GDP stood at 1.9 percent in 2019, but started to increase to 3.5 percent in 2020, 5.6 percent in 2021 and 4.4 percent in 2022 over a series of expansionary measures to cushion COVID-19 shocks.

The fiscal deficit ranged between 71 trillion won ($53 billion) and 112 trillion won during 2020-2022 after staying at 37 trillion won in 2019.

The country’s deficit-to-GDP ratio is expected to reach 5.1 percent this year. National debt grew more than 400 trillion won, or some 62 percent, over the past five years. Sovereign debt is expected to reach 1,070 trillion won this year.

To attain the goal of lowering the ratio, the government is likely to slash next year’s state spending below this year’s budget of 679.5 trillion won.

The plan comes amid gloomy outlooks on the global economy due to the prolonged war between Ukraine and Russia, as well as the slowdown in China’s GDP growth.

The lackluster local real estate market and record-high household debt, which restricts consumption, could also be core factors that lower GDP growth. In addition, the nation’s imports are outstripping exports, aggravating the trade deficit.

By Kim Yon-se(kys@heraldcorp.com)