[2020 National Audit] Fiscal Shock Index Expands for Second Consecutive Year

[Asia Economy Reporter Eunbyeol Kim] The fiscal stance has remained expansionary for two consecutive years since last year. In response to the economic shock caused by the novel coronavirus disease (COVID-19), the government took proactive measures, resulting in a more pronounced expansionary fiscal stance this year compared to last year.

On the 16th, the Bank of Korea mentioned this in the National Audit materials submitted to the National Assembly's Planning and Finance Committee.

While the fiscal stance recorded negative values from 2016 to 2018, indicating a somewhat contractionary approach compared to the previous year, the fiscal shock index increased by more than 2 percentage points last year and this year, reflecting an expansionary fiscal stance.

The fiscal shock index is an indicator developed by the International Monetary Fund (IMF), defined by the increase or decrease in the structural fiscal balance (based on the ratio to nominal Gross Domestic Product (GDP)). It is used to evaluate the fiscal stance compared to the previous year. The structural fiscal balance was estimated by the surveyed country using the IMF method, which deducts cyclical factors from the fiscal balance.

If the fiscal shock index is greater than 0, it means the fiscal stance is expansionary compared to the previous year; if it is less than 0, it is considered contractionary.

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