[Q&A] Hong Nam-gi: "Debt ratio of 43% itself is not high... but we are quite cautious about the speed"

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, is giving a preliminary briefing on the "2020 3rd Supplementary Budget Proposal" at the Government Complex Sejong on May 29.

[Sejong=Asia Economy Reporter Joo Sang-don] Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, stated, "Our fiscal authorities are quite cautious about the speed at which the national debt is increasing."

Deputy Prime Minister Hong made these remarks during a detailed pre-briefing on the '2020 3rd Supplementary Budget' held at the Government Complex Sejong on the 29th of last month.

Once the third supplementary budget of 35.3 trillion won is executed, the national debt will increase to a total of 840.2 trillion won, raising the debt-to-GDP ratio to 43.5%. He said, "In terms of absolute scale, with the national debt at 43% of GDP, compared to 110% in OECD countries, we believe we have relatively more fiscal capacity and are in a favorable position." However, he added, "(Because we are cautious about the increasing speed) we will actively make efforts to secure medium-term fiscal soundness."

The following are key excerpts from the Q&A session between Deputy Prime Minister Hong and the press corps.

▲What is the purpose of promoting the Korean New Deal?

=The first purpose is to create sustainable jobs, such as digital jobs, alongside short-term job creation. The second is to generate demand to quickly overcome the COVID-19 crisis and to create new growth engines for the post-COVID era. Third, by leading with the public sector and steadily making future-oriented infrastructure investments that the government can undertake, we expect additional investments and job creation to spread to the private sector. These three objectives mainly summarize the purpose.

We mentioned that a total of 76 trillion won will be invested exclusively for the Korean New Deal. Phase 1 involves 31.3 trillion won, and Phase 2 involves 45 trillion won. For Phase 1's 31.3 trillion won, we have already prepared detailed project-specific annual plans, fiscal requirements, and the expected job creation effects. We believe that project implementation and fiscal support for Phase 1 will be precise. However, Phase 2 covers projects from 2023 to 2025, and while these projects are not yet as detailed as Phase 1, we plan to concretize them going forward and actively support the required budgets through annual normal budget planning.

▲How much do you expect the Korean New Deal to contribute to economic growth?

=Regarding the growth rate's driving effect, we have internal models that can produce figures, and in fact, we do have them. However, the growth effect is not solely due to the Korean New Deal but also includes demand from the second half economic policy direction, support for the Korean New Deal, and various non-fiscal policy effects. Therefore, it is not appropriate to provide separate figures solely for this.

▲How will the burden of large-scale deficit issuance on the government bond market be absorbed?

=Since the government bond issuance scale is 23.8 trillion won, it is true that there is an added burden on the government bond market. However, recently, international interest rates have been at ultra-low levels, which helps ease this burden. Secondly, various insurers and asset management companies have shown steady demand for government bonds. This steady demand from insurers, asset managers, and foreign bond funds is another factor. In particular, beyond the government bond market supply, we expect the Bank of Korea to absorb government bonds. From our perspective, this will significantly mitigate shocks to the government bond market. Nevertheless, the government will remain mindful of potential shocks and continue efforts to stabilize the market.

▲What measures are in place to address increased exchange rate volatility?

=Recently, the movement of the 1-dollar exchange rate has not reflected our economic slowdown or foreign exchange supply and demand conditions but rather is primarily influenced by increased tensions between the U.S. and China, which have affected the volatility of the yuan. As the government has repeatedly stated, if speculative trading or excessive one-sided movements in the exchange rate are expected to expand excessively in the foreign exchange market, the government will clearly activate various firm market stabilization measures it has prepared to respond accordingly.

This content was produced with the assistance of AI translation services.