Entering the Era of 1,000 Trillion Won National Debt... Government Must Take Fiscal Crisis Management Measures

[Asia Economy Reporter Jeong Hyunjin] The national debt has been increasing rapidly recently, to the extent that the amount of national debt expected to increase over the nine years since 2017 is greater than the cumulative national debt accumulated over 69 years until 2016 after the establishment of the Republic of Korea government. This has led to calls for the government to actively manage the fiscal crisis.

The Korea Economic Research Institute under the Federation of Korean Industries held a seminar titled "Diagnosis and Tasks of Korea's Fiscal Soundness" on the 25th at the Federation of Korean Industries building. Kwon Tae-shin, president of the Korea Economic Research Institute, said in his opening remarks, "Next year, for the first time in history, the national debt is expected to reach 1,000 trillion won, entering the era of a national debt ratio of 50%," adding, "Since national finance is the last bastion of the Korean economy, we must now thoroughly manage the national budget."

Park Hyung-soo, former president of the Korea Institute of Public Finance and current head of the K-Policy Platform, presented on "National Fiscal Outlook and Fiscal Soundness Management," stating, "According to the government's national fiscal management plan, the national debt is expected to increase by 782 trillion won over nine years from 2017 to 2025," explaining, "This figure is 1.2 times the cumulative national debt amount (627 trillion won) over 68 years from the establishment of the Republic of Korea government in 1948 until 2016."

Park said, "During the COVID-19 response, Korea's fiscal expenditure was relatively small compared to major advanced countries, but the proportion of permanent welfare expenditures, such as expanded child allowances and increased basic pensions, which are difficult to reduce once increased, is high, so fiscal deterioration is expected to continue for a long time," adding, "To defend against the deterioration of fiscal soundness, it is urgent to introduce fiscal rules that legally regulate fiscal deficits and national debt limits."

Kim Won-sik, a professor at Konkuk University and former president of the Korean Association of Public Finance, said in his presentation evaluating the 2022 government budget, "Among the 604.4 trillion won budget for next year, the health, welfare, and employment sectors account for the largest share at 216.7 trillion won (35.9%), and their contribution to the fiscal deficit is also very high at 30.6%," adding, "Korea has long seen an increase in social security and education expenditures while economic sector expenditures have decreased, leading to inefficiency in fiscal spending." He further noted, "According to the OECD's fiscal crisis management survey, Korea is one of the most passive countries in responding to fiscal crises among OECD members."

During a comprehensive discussion on measures to enhance fiscal soundness chaired by Choi Kwang, professor emeritus at Hankuk University of Foreign Studies and former president of the Korea Institute of Public Finance, panelists unanimously agreed that the urgent priority for securing fiscal soundness is the introduction of binding fiscal rules. Kim Sang-gyeom, professor at Dankook University, emphasized, "Sectoral fiscal expenditures lead to an increase in national debt, effectively passing on enormous debt from the current generation to future generations," stressing, "Strict and binding fiscal rules are necessary."

Ok Dong-seok, professor at Incheon National University and former president of the Korea Institute of Public Finance, also argued, "All governments fall into the temptation of spending more than necessary, thinking that even if they do not spend now, the next government will inevitably spend," adding, "To prevent reckless fiscal spending, it is necessary to promptly enact fiscal rules and monitor government fiscal management through an independent committee composed of experts." Kim Woo-chul, professor at the University of Seoul, proposed, "To secure fiscal soundness, expenditure restructuring is essential, and a reasonable total welfare finance standard must be established," suggesting, "It is necessary to control the growth rate of welfare expenditures to about 2 percentage points of GDP over the next five years."

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