Government: "Must Support Economic Recovery"... Concerns Over Increased Fiscal Burden

Reflecting Commitment to Narrow Economic Recovery Gap
Focus Expected on Supporting Small Businesses and Vulnerable Groups
Five Supplementary Budgets Since COVID-19 Outbreak
Fiscal Capacity 'Plummets' Due to National Debt Increase

[Asia Economy Reporter Jang Sehee] The government, which has stated that economic recovery is underway, is placing emphasis on the formulation of a second supplementary budget (supplementary budget) due to the persistent COVID-19 situation and the widening recovery gap.

A senior government official explained the necessity of the 'second supplementary budget' on the 24th, saying, "It is important to see how the economic flow changes," and added, "We need to consider measures to boost the growth rate and fill in the gaps through fiscal policy." While exports and domestic demand are showing improvement, the government aims to further solidify the economic recovery.

However, since the Moon Jae-in administration rapidly increased the scale of the main budget every year and formulated five supplementary budgets after the COVID-19 outbreak?four times last year and once this year?the fiscal burden has already grown. Therefore, if the government formalizes the second supplementary budget as early as this week, controversy over 'why it is necessary' is expected to intensify.

◆Exports and domestic demand show gradual improvement... "Need to solidify economic recovery"= The government cites the recovery gap as the basis for the supplementary budget. Although economic indicators such as domestic consumption expansion and export growth have turned positive, attention must be paid to the groups left behind in this process.

According to the Korea Customs Service, export value (provisional clearance basis) from May 1 to 20 was $31.115 billion, a 53.3% increase compared to the same period last year. Card approval amounts and department store sales also increased significantly, showing an improving trend in consumption indicators. Domestic card approval amount in April rose 18.3% compared to a year earlier, marking the third consecutive month of increase. Department store sales also increased by 2.6%, continuing a three-month upward trend.

However, employment indicators remain uncertain. Although the number of employed persons increased by 652,000, expanding from the previous month, the youth unemployment rate has remained at 10% for three consecutive months. The youth unemployment rate has not fallen below the 10% range for three months since recording 10.1% in February.

Accordingly, this supplementary budget is expected to include support for ▲ industries affected by gathering bans and business restrictions ▲ the severely impacted tourism sector ▲ vaccine research and development ▲ job creation for youth and women ▲ and vulnerable groups. In fact, social distancing measures at level 2 in the metropolitan area and level 1.5 in non-metropolitan areas were extended for three more weeks on the 21st, marking the sixth extension of the current measures implemented since February, continuing for four months.

◆Fiscal capacity sharply reduced due to expansionary fiscal policy= Concerns over fiscal soundness are growing as expansionary fiscal policies continue in response to COVID-19. A government official said, "Even considering the special nature of COVID-19, the speed of national debt increase is fast," adding, "Determining when and how much to reduce active fiscal spending remains a task."

According to the 'National Fiscal Operation Plan: Fiscal Volume Effects and Management Measures' submitted to the National Assembly along with the first supplementary budget this year by the Ministry of Economy and Finance, national debt this year is estimated at 965.9 trillion won. The national debt-to-GDP ratio reaches 48.2%. The management fiscal balance, which shows the government's pure financial condition, recorded a deficit of 4.86 trillion won.

Heo Jin-wook, head of the economic forecasting model at the Korea Development Institute (KDI), said, "Although the current national debt ratio is not high relative to GDP, it is difficult to prevent the increase in social security systems due to demographic changes such as low birthrate and aging," adding, "If expenditures increase rapidly in the short term, fiscal capacity will inevitably decline in the future." He emphasized, "A rapid increase in national debt could negatively affect credit ratings."

Therefore, the government's concerns about the role of fiscal policy are expected to be revealed at the National Fiscal Strategy Meeting scheduled for this week. Discussions are likely to continue on fiscal roles, expenditure restructuring, and the application of fiscal rules in 2025. The Ministry of Economy and Finance is considering plans to gradually normalize support projects that temporarily increased spending.

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