If Fiscal Rules Are Not Introduced... National Debt Ratio 192% by 2070

[Asia Economy Reporter Lee Ji-eun] An analysis has emerged that to maintain the national debt ratio at 60% of the Gross Domestic Product (GDP) even 50 years from now, the deficit ratio of the management fiscal balance must be kept at a stricter level of 1% than the fiscal rules currently being pursued by the government.

On the 6th, the National Assembly Budget Office (NABO) forecasted in its report titled "Impact Analysis of Introducing Fiscal Rules Based on Long-term Fiscal Outlook from 2022 to 2070" that maintaining the management fiscal balance deficit at an average of 1% of GDP from 2030 to 2070 would keep the national debt ratio, currently at 49.2%, suppressed at 60%.

The Ministry of Economy and Finance is preparing fiscal rules that set the deficit limit of the management fiscal balance at 3% of GDP, and reduce this limit to 2% if the national debt ratio exceeds 60%. However, since the rules are considered to have weak binding power, it has been decided to pass an amendment to the National Finance Act reflecting this in the current regular session of the National Assembly.

NABO applied the fiscal rules to the "Long-term Fiscal Outlook 2022-2070" published last month. The purpose was to see whether the national debt ratio could be managed at around 60% until the final year of the fiscal outlook, 2070. As a result, to maintain the national debt ratio at 60%, the management fiscal balance deficit ratio must not exceed 3.0% of GDP annually from 2023 to 2029. From the following year, the standard becomes stricter: 1.4% in 2030, 1.1% in 2040, and 1.0% in 2050. After 2060, the ratio must be lowered further to 0.9%. Considering that the expected management fiscal balance deficit ratio relative to GDP at the end of this year is 5.1%, this suggests that significant fiscal tightening will be necessary over a long period to maintain a national debt ratio of 60%.

If fiscal rules are not applied and the national debt ratio is not managed, the management fiscal balance deficit will reach 5.0% of GDP by 2040, and the national debt ratio will exceed 100% of GDP. Furthermore, by 2070, the management fiscal balance deficit will reach 6.7% of GDP, and the national debt ratio will rise to 192% of GDP, comparable to Greece's level.

NABO explained that to maintain the period during which the national debt ratio does not exceed the target (60%) for a longer time, more improvement in the management fiscal balance is necessary. To manage it only until 2030, an annual improvement of 1.55 percentage points of GDP in the management fiscal balance is required, but to manage the national debt ratio at around 60% until 2070, an annual improvement of 2.95 percentage points of GDP is needed, according to their analysis.

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