Board of Audit and Inspection: "Time to Reconsider Introducing Fiscal Rules Limiting National Debt to 45%"

[Asia Economy Reporter Son Seon-hee] On the 1st, the Board of Audit and Inspection suggested that "it is time to reconsider the introduction of fiscal rules as part of establishing effective mid- to long-term response measures to maintain fiscal soundness."

In the report titled 'Mid- to Long-term National Fiscal Operation and Management Status' released on the same day, the Board of Audit and Inspection stated, "If fiscal rules are introduced, the controllability of fiscal management will increase, which is effective in enhancing fiscal soundness." However, it also noted concerns that the introduction of fiscal rules could increase rigidity in fiscal management and weaken the fiscal stabilization function.

Fiscal rules were included in the 'Fiscal Soundness Act' bill submitted by the government to the National Assembly in 2016, which set a limit on the national debt ratio at 45%. If the national debt ratio exceeds this limit, a national debt reduction plan must be established and included in the national fiscal management plan, and surplus funds must be mandatorily prioritized for repayment of principal and interest on national debt. However, this bill was automatically discarded with the end of the 20th National Assembly.

According to the 'Expert Survey on the Introduction of Fiscal Rules' disclosed by the Board of Audit and Inspection, 35% of respondents answered that "there is an urgent need to introduce fiscal rules to secure fiscal soundness," while 48.3% answered that "there is a need for introduction, but social consensus should precede." On the other hand, 10% responded that "the introduction of fiscal rules is premature," and only 1.67% said "the need for introduction is low."

The Board of Audit and Inspection added, "The Ministry of Economy and Finance needs to comprehensively consider the National Assembly discussions on the Fiscal Soundness Act bill, expert opinions on the necessity of introducing fiscal rules, and the pros and cons of introducing fiscal rules in the '2065 Long-term Fiscal Outlook,' and review whether to introduce fiscal rules, thereby establishing future policy response directions based on the outlook results."

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