IMF: "Korea's Expansionary Fiscal and Monetary Policies Will Accelerate Economic Normalization"

Report on the IMF Annual Consultation Results on the 27th

[Asia Economy Reporter Jang Sehee] The International Monetary Fund (IMF) forecasted that "considering the considerable level of idle economic capacity and the downside risks to economic recovery, additional fiscal and monetary policy easing will accelerate the pace of economic normalization" in relation to South Korea's response to the novel coronavirus disease (COVID-19).

According to the IMF's annual consultation report on the 27th, the IMF noted that the 2021 budget appropriately maintains an expansionary fiscal policy stance but suggested that selective transfer expenditures targeting affected workers and businesses could be increased. In particular, it saw room to accelerate public investment plans that support recovery.

The IMF assessed that even if the fiscal deficit size increases somewhat compared to this year's budget proposal, it could be offset by gradual fiscal consolidation over the coming years. It especially emphasized that the government's submission of fiscal rules to the National Assembly last year was a welcome development.

Additionally, monetary policy was operated appropriately in an accommodative manner, and the IMF diagnosed that there is room for further support to solidify economic recovery and bring inflation closer to the Bank of Korea's price stability target.

It added that as the economy recovers, the focus of support needs to shift from liquidity provision aimed primarily at support to selective measures promoting corporate restructuring and enhancing viability.

The IMF projected that South Korea's real gross domestic product (GDP) would record a 1% contraction in 2020, followed by a 3.1% growth (provisional) in 2021.

It further stated, "The Korean New Deal is a strategy that increases opportunities for developing new growth engines and expanding inclusiveness," adding, "If broad product market reforms and measures to resolve some remaining rigidities in the labor market are added, it will help achieve even greater effects."

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