IMF: "Korean Government's COVID-19 Response Successful... Concerns Over Household Debt"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Seongpil Cho] The International Monetary Fund (IMF) has evaluated that the Korean government successfully responded to the COVID-19 shock through sound macroeconomic fundamentals and bold policy measures.

According to the Ministry of Economy and Finance on the 30th, the IMF stated this in its report titled 'Korea is Containing COVID-19 and Looking Ahead.' The IMF mentioned in the report that the Korean government achieved a lower infection rate compared to other advanced countries through effective quarantine policies, and implemented comprehensive policy responses including financial support for affected groups and rapid financial market stabilization measures. As a result, it judged that last year's real Gross Domestic Product (GDP) growth rate was -1.0%, minimizing negative growth among the Group of Twenty (G20) advanced countries. Furthermore, while the Korean economy is recovering rapidly, the service and consumption sectors have not yet returned to pre-pandemic levels. The IMF evaluated that the government is appropriately maintaining expansionary fiscal and monetary policies, including additional selective support such as a supplementary budget of 0.8% of GDP, in preparation for a K-shaped recovery and uncertainties.

The IMF praised the Korean financial system for effectively responding to the COVID-19 shock thanks to sound macro-financial policies but expressed concerns about the rapidly increasing loans. Since COVID-19, loan volumes have rapidly increased across all sectors, with the loan-to-GDP ratio surpassing the trend value. The report pointed out that household debt has a high proportion of real estate-secured loans and is at the highest level among OECD countries at 190% of disposable income, and that about half of small and medium-sized enterprise (SME) credit loans are composed of zombie firms that cannot even cover interest with their earnings.

The report emphasized, "The Korean New Deal is appropriately designed to digitalize the Korean economy, transition to a carbon economy, and strengthen the social safety net," adding, "These policies need to contribute to increasing productivity in the service sector and reducing inequality among women, youth, and the elderly." It also cited easing entry barriers for startups, promoting innovation, reforms to reduce labor market rigidity, and strengthening carbon pricing to induce green investment.

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