OECD "Korea Must Prepare for Increased Fiscal Burden and Improve Pension System"…KDI Hosts Forum

This Year’s South Korea Economic Growth Rate 2.8%, Inflation Rate 5.2% Forecast

(From left) Hyunsoo Choi, Director of Social Security Finance Policy Research Division, Korea Institute for Health and Social Affairs; Sanggyun Han, International Cooperation Officer, Ministry of Health and Welfare; Eunmi Jung, Head of Growth Dynamics Research Division, Korea Institute for Industrial Economics and Trade; Yongjin Park, Head of Policy Research Department, Bank of Korea; Jiho Lee, Economic Policy Officer, Ministry of Economy and Finance; Vincent Coen, Acting Deputy Director, OECD Economic Review Division; Jon Pareliusen, OECD Korea/Sweden Desk Head; Youngsun Ko, Acting President, Korea Development Institute (KDI); Kyucheol Jung, Head of Economic Outlook Division, KDI; Yosep Han, Research Fellow, Industrial and Market Policy Research Department, KDI, are posing for a commemorative photo at the "OECD Korea Economic Report Presentation Forum" on the 19th. (Photo by KDI)

[Asia Economy Sejong=Reporter Son Seon-hee] The Organisation for Economic Co-operation and Development (OECD) has suggested that South Korea prepare for the expanding fiscal burden due to rapid population aging and improve its pension system.

The Korea Development Institute (KDI) announced on the 19th that it held a related forum at the KDI video conference room in Sejong to coincide with the release of the '2022 OECD Economic Survey of Korea.' In this report, the OECD projected South Korea's growth rate this year to be 2.8% (an upward revision of 0.1 percentage points from the June forecast) and next year's growth rate to be 2.2% (a downward revision of 0.3 percentage points).

Inflation was forecast at 5.2% this year, assuming international oil prices remain at current levels next year, which is 0.4 percentage points higher than the June forecast. Inflation is also expected to be 3.9% next year.

The forum was composed of two sessions: ▲ Macroeconomic outlook and policy ▲ Social safety nets and youth employment. After presentations by the OECD Economic Review Division in each session, discussions were held.

Vincent Cohen, Acting Deputy Director of the OECD Economic Review Division, who presented in the first session, recommended "normalizing monetary policy to stably manage inflation expectations and introducing and adhering to fiscal rules to prepare for expanding fiscal burdens."

Acting Deputy Director Cohen evaluated that "South Korea's economic growth has been driven by semiconductor exports, and it quickly recovered from the COVID-19 crisis through strong health and support policies," adding, "Although inflation has risen and supply chain disruptions continue due to the Ukraine war, recovery is expected to continue, especially in face-to-face service industries, as social distancing measures are eased." In particular, he advised, "Considering the future fiscal burden from rapid aging, the scale of fiscal support during the COVID-19 crisis should be reduced."

Jon Pareliusen, Head of the OECD Korea/Sweden Desk and presenter in the social safety nets and youth employment session, recommended "strengthening old-age income security through the National Pension, alleviating the dual structure of product and labor markets, and reducing the gap between education and the labor market." He stated, "The scope of employment insurance coverage should be expanded, and the pension system improved to enhance old-age income security," and suggested, "Relaxing protection for regular workers while expanding social insurance enrollment and training for non-regular workers to ease the dual labor market structure, as well as mitigating the dual structure of the product market through a comprehensive shift to negative regulation and expanded use of regulatory sandboxes."

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