Fiscal Deficit of 280 Trillion Won Over 5 Years of Moon Administration... Twice That of Park Geun-hye Government

Consecutive Super Supplementary Budgets... Ruling and Opposition Presidential Candidates' Generous Pledges
Concerns Over Decline in National Credibility

[Asia Economy Sejong=Reporter Kwon Haeyoung] The fiscal deficit during the five years of the Moon Jae-in administration is estimated to have reached about 280 trillion won, more than double that of the previous Park Geun-hye administration. While revenue (tax income) remained lackluster, expenditures grew rapidly, causing the national finances to deteriorate swiftly. Despite this situation, both ruling and opposition parties passed an unprecedented "snowflake supplementary budget (추경)" ahead of the presidential election, and presidential candidates are competing to propose populist spending pledges, raising concerns that the country's creditworthiness could decline immediately after the new government takes office.

Based on data from the Ministry of Economy and Finance on the 22nd, the management fiscal balance, which reflects the actual state of national finances, recorded a deficit of around 280 trillion won over the five years from 2017, when the Moon administration began, through 2021. The management fiscal balance is an indicator derived by subtracting the four major social security funds from the "integrated fiscal balance," which itself is the difference between the central government's net revenue and net expenditure, providing a clear view of the government's real financial condition.

The management fiscal balance under the current administration was -18.5 trillion won in 2017, the first year in office; -10.6 trillion won in 2018; -54.4 trillion won in 2019; -112 trillion won in 2020; and is estimated to be in the -80 trillion won range for 2021. Earlier, the Ministry of Economy and Finance announced that the annual integrated fiscal balance for last year was in the -30 trillion won range, widening from the provisional figure of -22.4 trillion won for January to November. Based on this, the annual management fiscal balance is calculated to have increased its deficit from the January to November figure of -77 trillion won to about -80 trillion won.

Thus, the fiscal deficit over the five years of the Moon administration is estimated at about 280 trillion won, approximately 2.5 times that of the previous Park Geun-hye administration (2013?2016, 111.3 trillion won deficit) and nearly 2.8 times that of the Lee Myung-bak administration (2008?2012, 98.8 trillion won deficit). Although the current administration faced the unexpected variable of the "global pandemic," fiscal spending had already loosened before the COVID-19 outbreak. The fiscal deficit in 2019, before the pandemic, was 54.4 trillion won, which was more than 10 trillion won higher than the 43.2 trillion won deficit in 2009, when a supplementary budget of 28.4 trillion won was enacted to overcome the global financial crisis.

As a result of the current administration borrowing money to spend public funds, the national debt increased by 54% from 626.9 trillion won in 2016, before the administration took office, to 965.3 trillion won in 2021. This year, it is expected to reach 1,075.7 trillion won, with the ratio to Gross Domestic Product (GDP) reaching 50.1%. Despite the red flags raised in national finances, the political sphere is focused on election-related spending. The National Assembly passed a supplementary budget of 16.9 trillion won the day before, and in the presidential candidates' TV debate held the same day, candidates from both ruling and opposition parties proposed populist spending pledges such as "COVID debt credit amnesty (Lee Jae-myung, Democratic Party candidate)" and "an additional 37 trillion won supplementary budget support (Yoon Seok-youl, People Power Party candidate)."

International credit rating agency Moody's began its annual consultation for evaluating South Korea's sovereign credit rating the day after the supplementary budget was passed. Meanwhile, concerns have emerged that the deterioration of fiscal soundness could lead to a downgrade in the country's credit rating. Previously, Moody's downgraded South Korea's sovereign credit rating outlook from "positive" to "negative" by two notches in February 2003, just before the Roh Moo-hyun administration took office, citing economic policy uncertainty and North Korea's nuclear issues.

Professor Kim Woo-cheol of the Department of Taxation at the University of Seoul emphasized, "As national debt rapidly increases, fiscal soundness management should be a major agenda item in this presidential election, but all candidates' pledges converge on expanding government spending. When the next government takes office, it must prioritize fiscal soundness management and pursue strengthening fiscal health as a top policy priority."

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