Heojang IMF Director: "Energy-Driven Inflation Will Persist Even After the Ukraine War Ends"

Sanctions on Russia unlikely to be lifted immediately... Energy-driven inflation expected to continue
Concerns over future debt flow due to aging population... Emphasis on fiscal soundness recovery

Heo Jang, Executive Director of the International Monetary Fund (IMF)

[Asia Economy Washington (USA) = Reporter Kwon Haeyoung] "Even after Russia's invasion of Ukraine ends, global inflation will continue for some time."

Heo Jang, Executive Director of the International Monetary Fund (IMF), said this on the 19th (local time) during a meeting with reporters in Washington DC, USA. He stated, "International sanctions against Russia will not be lifted immediately even after the war ends." Heo previously served as the Deputy Director-General for International Economic Affairs at the Ministry of Strategy and Finance before joining the IMF as an Executive Director in November 2020.

He explained, "In that context, if the upward trend in energy and grain prices continues, inflation will not subside quickly," diagnosing that "due to COVID-19, China's lockdowns, and the unexpected Ukraine crisis, inflation has become a structural issue."

In the World Economic Outlook released that day, the IMF revised South Korea's economic growth rate for this year down by 0.5 percentage points from the previous forecast (3.0%) to 2.5%, and raised the consumer price inflation forecast by 0.9 percentage points from the previous estimate (3.1%) to 4%.

The downward revision of Korea's growth forecast reflects its high dependence on overseas markets. Heo said, "South Korea's high overseas dependence led to the downward adjustment of its growth rate," adding, "Since other international organizations often refer to the IMF's growth forecasts, further downward revisions of Korea's growth rate by international organizations are expected." Given Korea's economic structure, which relies heavily on trade, a slowdown in global economic growth is particularly damaging. The IMF lowered its global growth forecast from 4.4% in January to 3.6%, a 0.8 percentage point drop in just three months.

However, he noted that the decline in global economic growth this year might be less severe than expected. He said, "The IMF's global growth forecast (3.6%) announced the day before was slightly higher than the 3.5% forecast made at the board meeting about ten days earlier," explaining, "This is due to an upward revision of Russia's growth rate. Although we still hold a pessimistic view of the global economy, we believe that, compared to the early days of the Ukraine crisis, there is some adaptation, and things will improve going forward."

He expressed significant concern about the increasing speed of national debt due to aging populations. Heo said, "Considering that the global government debt-to-GDP ratio is 115%, South Korea's debt level (50%) is relatively small, but the future debt trajectory is worrisome due to the fastest aging population in the world." He added, "In advanced countries, population structure changes have mostly been completed, and social security systems are in place, so it is relatively easier to reduce debt despite increases. In contrast, South Korea is still undergoing this process, with many social security systems yet to be established and social compromises needed." This points to the necessity of mid- to long-term fiscal soundness recovery measures such as legislating fiscal rules.

He also pointed out that government fiscal spending should focus on vulnerable groups. He said, "(Energy tax cuts such as fuel tax reductions) are a form of fiscal support but can be criticized as regressive," adding, "Since our economy has largely normalized after COVID-19, fiscal support should be targeted toward vulnerable groups."

Furthermore, Heo emphasized, "The next government should strengthen investments in science and technology and other core future industries." He said, "The IMF highly evaluates Korea's New Deal policy for its well-conceived concepts such as Digital, Green, and Human New Deals, which promote large-scale initiatives for future growth industries," adding, "Although the new government will change the branding of the Korean New Deal and there will be changes such as reductions in government sector employment, the core policies for investing in future industries are expected to continue."

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