Three Years of Large-Scale Deficits in National Finances... First Since the IMF Crisis

Ministry of Economy and Finance Monthly Fiscal Trend Announcement
Last Year's Integrated Fiscal Balance at -30 Trillion Won Level... Continued Deficit and Concerns Over Fiscal Soundness Deterioration

[Asia Economy Sejong=Reporter Kwon Haeyoung] Last year, the integrated fiscal balance, which shows the state of the national finances, recorded a deficit in the 30 trillion won range, marking a deficit for three consecutive years since 2019. This is the first time since the 1997-1999 period when the Korean economy was shaken by the International Monetary Fund (IMF) foreign exchange crisis. This is the result of increased fiscal spending due to COVID-19, and a deficit is expected again this year, making it inevitable to have a deficit for four consecutive years for the first time since statistics have been compiled. In this situation, concerns are emerging that the issue of fiscal soundness could hamper our economy for years to come, as the political sphere is flooding with populist pledges ahead of the presidential election.

According to the 'Monthly Fiscal Trends and Issues February Edition' released by the Ministry of Economy and Finance on the 17th, the government's integrated fiscal balance, which shows the state of national finances, was tentatively estimated to have a deficit in the 30 trillion won range for the year 2021. The integrated fiscal balance is the figure obtained by subtracting net expenditures from net revenues of the central government. Last year, total revenues were estimated at 570 trillion won, and total expenditures at around 600 trillion won. ▶Related article page 2

Thus, the government's integrated fiscal balance recorded deficits for three consecutive years: -12 trillion won in 2019, -71.2 trillion won in 2020, and around -30 trillion won in 2021. This is the first time since the three consecutive years of deficits during the foreign exchange crisis from 1997 to 1999. This is the result of the Moon Jae-in administration’s expansionary fiscal policy maintained from the beginning of its term, with COVID-19 adding fuel to the fire. The government prepared two supplementary budgets last year, amounting to 14.9 trillion won and 34.9 trillion won respectively.

Kang Sungjin, a professor of economics at Korea University, said, "The Moon administration increased fiscal spending by running deficit budgets throughout its term, and it will be difficult for the next government to drastically reduce spending suddenly." He expressed concern, saying, "Regardless of which side the next government belongs to, the trend of integrated fiscal balance deficits is likely to continue, and fiscal soundness is expected to deteriorate further."

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