Hong Nam-ki Emphasizes Fiscal Rules in Meeting with Rating Agency 'Fitch'... Reality Hindered by National Assembly

Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki is having a video conference with Fitch Ratings at the Government Complex Sejong on the afternoon of the 5th.

"Will operate complementarily... Emphasized proactive total volume management efforts"
Fiscal rules stalled in the National Assembly for six months
"Considering booster shot introduction in response to COVID-19 Delta variant"

[Sejong=Asia Economy Reporter Kim Hyunjung] Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, emphasized Korea's commitment to adhering to fiscal rules to the international credit rating agency Fitch and expressed his intention to proactively manage the total fiscal volume. However, the fiscal rules submitted by the Ministry of Economy and Finance to the National Assembly at the end of last year have yet to be presented to the subcommittee, leaving the adoption uncertain. Regarding COVID-19, he mentioned that the introduction of booster shots in response to the Delta variant is under consideration.

According to the Ministry of Economy and Finance on the 6th, Deputy Prime Minister Hong met via video call with James McCormack, Global Head of Sovereign Ratings at Fitch, the previous morning and made these remarks. This meeting was part of Fitch’s annual consultation ongoing since the 30th, marking the second international credit rating agency annual consultation this year following Moody’s in March.

At the meeting, Fitch inquired about changes in the government’s response to the increase in COVID-19 cases in Korea and the feasibility of achieving medium-term fiscal rules. This appeared to reflect concerns about Korea’s worsening fiscal soundness, which currently lacks effective brakes. Hong stated, "The two criteria of the fiscal rules, the national debt ratio and the integrated fiscal balance, can be operated complementarily depending on conditions," and emphasized, "To ensure compliance with the fiscal rules when they take effect in 2025, we will make proactive total volume management efforts in advance."

The fiscal rules explained by Deputy Prime Minister Hong aim to manage the national debt ratio to be below 60% of GDP and the integrated fiscal balance deficit below 3% starting in 2025, with the goal of keeping the product of the excesses over these two criteria at or below 1. However, although the government submitted these rules to the National Assembly at the end of last year, discussions have not progressed, and the adoption remains undecided.

Regarding COVID-19, he mentioned additional measures such as introducing booster shots in response to the Delta variant. He explained, "If there are no disruptions in the vaccine supply plan, herd immunity will be achieved early in November," and added, "We are also considering additional measures such as the introduction of booster shots in response to the Delta variant." He further stated, "Although the eased social distancing measures scheduled for the 1st were postponed by a week, the possibility of additional movement and business restrictions is low," and elaborated, "Consumption stimulus measures planned according to the COVID-19 situation are expected to face no major constraints as the current spread is sufficiently manageable."

Regarding the recent Korean economy, he emphasized, "COVID-19 is better controlled compared to other countries, which is helping economic recovery," and highlighted that due to favorable exports, investment, and the effect of the 33 trillion won second supplementary budget, a growth rate of 4.2% is projected for this year. He said, "In the second half, policies will focus on restoring consumption and employment to pre-crisis levels," and explained, "The second supplementary budget will be funded without issuing deficit bonds, and some national debt will be repaid, improving the national debt ratio relative to GDP compared to initial projections." On household debt and real estate prices, he stated, "We plan to strengthen management efforts to minimize risks."

Meanwhile, Fitch will announce Korea’s credit rating within one to two months after completing consultations with the Bank of Korea, the Ministry of Economy and Finance, the Korea Development Institute (KDI), the Ministry of Unification, and others. Fitch currently rates Korea at AA-, the fourth highest rating, with a stable outlook.

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