IMF·OECD "South Korea's Fiscal Deficit Among Lower Ranks in Advanced Countries This Year"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Eunbyeol] Amid the massive fiscal spending by countries worldwide due to the COVID-19 pandemic, South Korea's fiscal deficit this year is estimated to be among the lowest levels compared to advanced countries.

According to the OECD's Economic Outlook report released on the 20th, South Korea's general government budget balance deficit for this year is estimated at 4.2% of its Gross Domestic Product (GDP). This ranks as the fourth smallest among 42 major countries, including advanced nations as well as China and India, following Norway (1.3%), Denmark (3.9%), and Sweden (4.0%).

In particular, the OECD projects that many advanced countries such as the United Kingdom (16.7%), the United States (15.4%), Spain (11.7%), Italy (10.7%), and Japan (10.5%) will have fiscal deficits exceeding 10% of their GDP. Additionally, countries considered relatively successful in containing COVID-19, such as China (6.9%) and Germany (6.3%), are also expected to have fiscal deficits exceeding 5% of GDP.

Earlier, the International Monetary Fund (IMF) also forecasted in its Fiscal Monitor report released in October that South Korea's general government primary balance deficit would be 3.7% of GDP this year, ranking second smallest among 34 advanced countries after Cyprus (3.1%). The IMF estimated that the average fiscal deficit among advanced countries would reach 13.1% of GDP, driven by significant increases in major advanced economies such as Canada (19.8%), the United States (16.7%), the United Kingdom (15.5%), and Japan (13.9%).

These projections for South Korea's fiscal balance differ somewhat from the Ministry of Economy and Finance's forecast of a management fiscal balance deficit of KRW 118.6 trillion (6.1% of GDP) for this year. A ministry official explained, "The OECD and IMF adjust the detailed items included in the fiscal balance for cross-country comparisons, so their figures differ in detail from our management fiscal balance or consolidated fiscal balance figures."

The relatively small fiscal deficit in South Korea compared to other countries is due to the fact that while the global COVID-19 damage has snowballed, countries have poured massive fiscal resources comparable to wartime levels.

Compared to the United States and Europe, South Korea, which has relatively smaller damage, is estimated by the IMF to have implemented fiscal stimulus measures (including tax cuts) amounting to 3.5% of GDP this year, ranking third smallest among 20 advanced countries after Finland (2.6%) and Spain (3.5%). In contrast, several advanced countries such as New Zealand (19.5%), Singapore (16.1%), Canada (12.5%), the United States (11.8%), and Japan (11.3%) have implemented fiscal stimulus measures exceeding 10% of GDP in response to COVID-19.

In this regard, the OECD estimated South Korea's government debt-to-GDP ratio this year at 43.9%, ranking eighth lowest among 32 advanced countries.

Despite the swelling fiscal deficits and government debts worldwide, international organizations such as the IMF are actively recommending increased fiscal spending.

Although COVID-19 vaccine distribution has begun, it is expected to take time to achieve a full recovery, so countries need to sustain their economies through further fiscal spending.

The South Korean government is also expected to respond more actively for the time being, as it has sufficient fiscal capacity. With the damage from the third wave already exceeding that of the second wave and daily new confirmed cases exceeding 1,000 without signs of slowing, and with consideration of raising social distancing to level 3, the ruling Democratic Party is reportedly reviewing expanding the third disaster relief fund and preparing an additional supplementary budget.

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