Government to Announce Korea-style Fiscal Rules This Month... Enhancing 'Flexibility'

[Asia Economy Reporter Kwangho Lee] The government will announce fiscal rules this month that set specific targets for fiscal indicators and ensure compliance. The target items include four categories: expenditure, revenue, debt, and fiscal balance, with an emphasis on flexible rules targeting national debt and fiscal deficit.

According to the Ministry of Economy and Finance on the 7th, the government is considering introducing fiscal rules based on the 2020?2060 long-term fiscal outlook results.

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, stated at the "2021 Budget" briefing, "The fiscal growth rate was very high recently to overcome the economic crisis and the novel coronavirus disease (COVID-19)," adding, "The government has determined that fiscal rules are necessary and plans to announce them by September."

Rules that control the national debt ratio relative to gross domestic product (GDP) or prevent the fiscal deficit from exceeding a certain range are already the most common approach adopted by many advanced countries. Currently, advanced countries and major developing countries such as Germany, the United Kingdom, France, Sweden, Switzerland, Austria, and Brazil have introduced debt rules or fiscal balance rules.

Korean-style fiscal rules are expected to manage fiscal deficit or total national debt within a certain level like advanced countries, but include exceptions that allow for expansionary fiscal policy during periods of rapid economic downturn.

This is to prevent fiscal policy from being constrained by fiscal rules and failing to play its role even in situations where growth sharply declines due to special circumstances.

Germany has also reportedly considered preparing so-called shadow budgets, such as public enterprise debts not subject to fiscal rules, as the economic recession prolongs.

An official from the Ministry of Economy and Finance said, "We are discussing detailed contents of fiscal rules suitable for Korea's situation and plan to announce them as soon as possible." They added that the fiscal rules will be presented with enhanced flexibility, recognizing exceptions for fiscal roles in extreme crises like the COVID-19 pandemic.

Meanwhile, according to the "2020?2060 Long-term Fiscal Outlook" announced by the government on the 2nd, Korea's national debt will rise to 81.1% of GDP by 2060 due to low birth rates and aging. However, if the government implements a policy mix that includes revenue expansion measures alongside mandatory spending in welfare and other areas, this ratio is projected to fall to 65.4%.

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