Government Warns of Illusion in 'Fiscal Soundness Statistics'... Budget Committee Calls for Change in Application Criteria

Senior Expert of the National Assembly Budget Committee Points Out
Application of 'Weighted Average' in OECD Statistics... Effect of Appearing Healthier Compared to Other Countries
Using Simple Average Shows Decline Compared to OECD Average

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hye-min] As the National Assembly's review of the next year's budget plan, amounting to 556 trillion won, has officially begun, concerns have been raised by the Special Committee on Budget and Accounts that the statistical standards used by the government to compare fiscal soundness with other countries are inappropriate. The government selectively cites only the 'weighted average' from the OECD statistics, which creates an effect where fiscal soundness appears relatively higher compared to the past and to countries with larger economies.

◆ "Weighted average is not appropriate as a country comparison indicator... Simple average should be applied" = A senior expert of the National Assembly's Budget and Accounts Committee pointed this out in the '2021 Budget and Fund Operation Plan Review Report.'

According to the review report, the Ministry of Economy and Finance compares Korea's general government debt (D2) with other countries by citing the 'weighted average' rather than the 'simple average.' Until 2015, the 'simple average' was applied, but from April 2016, starting with the '2015 Fiscal Year National Settlement Results' through the recent '2020-2060 Long-term Fiscal Outlook,' the 'weighted average' has been used.

The weighted average assumes the OECD as a single country and calculates the debt ratio by giving greater weight to countries with larger economies. Because of this, the national debt ratios of large economies such as the United States, Japan, France, and the United Kingdom appear higher when calculated by simple average, while Korea's fiscal soundness may appear better, according to the Budget and Accounts Committee. In other words, it can cause an optical illusion regarding fiscal soundness.

For example, from 2013 to 2018, the government debt-to-GDP ratio of OECD member countries increased by 0.5 percentage points based on the weighted average. Korea's increase was the same. However, the simple average government debt ratio of OECD member countries decreased by 2.3 percentage points during the same period. Applying the simple average leads to the interpretation that while the average fiscal soundness of OECD member countries improved, Korea's worsened.

According to International Monetary Fund (IMF) statistics, from 2013 to 2019, Korea's government debt ratio increased by 4.2 percentage points, whereas the simple average ratio of OECD member countries decreased by 4.5 percentage points, showing an even larger gap.

The Budget and Accounts Committee pointed out, "The Ministry of Economy and Finance argues that weighted averages are appropriate because international comparisons of fiscal soundness are meant to compare with the entire OECD as a whole, assuming OECD as a single country. However, since the statistics are used to compare the fiscal management status of individual countries with ours, it is more appropriate to apply the simple average as the comparison standard."

President Moon Jae-in is delivering the 2021 budget address at the National Assembly plenary session on the 28th. Photo by Yoon Dong-joo doso7@

◆ "Projects not aligned with the purpose are also grouped under the 'Korean New Deal'... The nature must be clarified" = The Budget and Accounts Committee also pointed out problems with the 'Korean New Deal' budget, which is allocated 21.3 trillion won in next year's budget plan.

The committee said, "Some projects do not align with the Korean New Deal, and there are projects currently excluded that need to be added. Clear criteria for designating the Korean New Deal should be established to manage the projects."

For example, the Ministry of Trade, Industry and Energy's 'National Standard Technology Enhancement Project' (37.4 billion won) is entirely included in the Digital New Deal budget. However, about 40% of the new tasks in 2020 were research projects unrelated to the Digital New Deal, and most are continuing projects with budgets allocated again in 2021. Therefore, a significant portion of the project budget may be invested in tasks unrelated to the Digital New Deal, the committee noted.

On the other hand, projects such as the Ministry of Agriculture, Food and Rural Affairs' 5G-based Food Safety Production Technology Development (4.7 billion won) and Smart Livestock ICT Pilot Complex Construction (16.1 billion won), as well as the Ministry of Science and ICT's Bus Wi-Fi Installation (7.2 billion won), which utilize the latest technologies, are excluded from the Digital New Deal, the committee pointed out.

The Budget and Accounts Committee emphasized, "As large-scale national projects, designation as such leads to preferential budget allocation, and it is necessary to provide accurate information to the public, including private companies. To this end, it is necessary to supplement the selection criteria for projects that align with the purpose of the Korean New Deal and those that do not." The committee also pointed out that although the government announced plans to invest 114.1 trillion won in the Korean New Deal by 2025, the annual investment plans beyond next year's budget are not clearly presented, which is also problematic.

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