Ruling party to revise fiscal rules to provide pandemic support to all people

It was reported that the ruling party, which is trying to pass the second revised supplementary budget bill to provide pandemic support to all South Koreans again, is considering a measure to partially revise South Korea’s fiscal rules. While the Ministry of Economy and Finance announced in October that the fiscal rules of setting the national debt-to-GDP ratio at 60 percent will be applied from 2025, the debt-to-GDP ratio can go up faster than expected.

“Given the second supplementary budget and the compensation for loss act in discussion at the National Assembly, it might be difficult to keep the debt-to-GEP ratio below 60 percent by 2025,” said a source familiar with the ruling party on Monday. “Measures to make detailed exceptional clauses and such are mentioned in the course of discussions on the legislation of fiscal rules.” According to the fiscal rules, the government should reduce its spending significantly if the ratio exceeds 60 percent.

According to the Ministry of Economy and Finance, South Korea’s debt-to-GDP ratio is expected to reach 59.7 percent in 2024 as a result of the first supplementary budget to provide the fourth round of pandemic support in March this year. Once the second supplementary budget is compiled, the ratio is likely to exceed the threshold of 60 percent before 2025.

Consequently, the Democratic Party of Korea has no choice but to partially revise the fiscal rules to provide pandemic support to all South Koreans around Chuseok in September. One of the attendees of the national fiscal strategy meeting held at the presidential Blue House on Thursday reportedly said that preparation is needed as the opposition party’s heavy criticism on fiscal soundness is expected once discussions on the supplementary budget begin. President Moon Jae-in said at the meeting that it is necessary to maintain the expansive fiscal stance at least until next year.

As a result, the ruling party is likely to revise the fiscal rules before the payment of pandemic support to all people. The party’s floor leader Yun Ho-jung who said the second batch of supplementary budgets will be a powerful driver of economic recovery also said at a Supreme Council meeting that fiscal policies, such as supplementary budget, will be put forward to drive the recovery of the contracted real economy this summer.

Some members of the ruling party argue for raising the threshold of fiscal rules. “As the average national debt-to-GDP ratio is 80 percent among OECD member countries, whether the 60 percent threshold under the South Korean fiscal rules is appropriate should be examined,” said a re-elected member of the Democratic Party.


Sung-Hwi Kang yolo@donga.com