National Debt to Reach 296 Trillion Won by 2008

It is speculated that the national debt will reach 30 percent of GDP by 2006.

The government hopes, with five percent economic growth every year, for balanced finances starting from 2008. However, the prospect of growth is gloomy, and some say that it might be difficult for the economy to be in the black.

Kim Byeong-il, minister of the Ministry Planning and Budget (MPB), presented the “2004-2008 National Finance Management Plan (NFMP)” to the National Assembly and said, “From today until 2007, we will tie financial losses to one percent of GDP, and we will achieve balanced finances in 2008.”

It is the first time that the MPB has announced a finance plan for five years.

According to the NFMP, the national debt in 2008 will be 296.1 trillion won (27.9 percent). This figure is five times greater than that of 1997 when the financial crisis erupted. In particular, in 2006, the outlook is 271.2 trillion won, which is 29.8 percent of GDP.

The reason for the increase in debt is that since the financial crisis, 49 trillion won of public funding that was lost had to be preserved by issuing national bonds.

Total expenses, including budget and fund expenses, will increase to 251 trillion won from 196 trillion won by 2008. Total income, including tax and annuity income, will increase by 7.4 percent annually for five years to 284 trillion won.

With the enlargement of finance, the burden rate of people, including tax and fund burdens, will be 26.3 percent of GDP after five years. This is 1.3 percent higher than the current 25 percent. The tax burden rate will stay at the 20 percent level.

On the other hand, domestic and foreign economy research institutes are continuously presenting reports that say this year’s growth will stop at four percent. This produces doubt about the NFMP’s propriety. As the growth rate drops, so too will the amount of taxes collected, resulting in financial losses. Professionals argue that considering the money spent on the movement of the capital city and various social welfare services, there might be a financial crisis looming.

The LG Economic Research Institute’s Oh Moon-suk criticized, saying, “It is understandable that five percent growth is the government’s goal. However, the budget has to be dealt with using a conservative view so that even though the economy falls, there will be no serious damage done to finances.”

If the real growth rate does not reach five percent for the next five years, the government’s hope of reaching a balanced financial level by 2008 might have to be postponed.

Ji-Wan Cha cha@donga.com