Last Year’s Fiscal Deficit Expected to Exceed 110 Trillion Won... Fiscal Rules Delayed Indefinitely

Ministry of Economy and Finance Publishes Monthly Fiscal Trends Report

[Asia Economy Sejong=Reporter Song Seung-seop] Last year, the fiscal deficit is expected to exceed 100 trillion won by a wide margin. Despite increased tax revenues, the government spent much more money. National debt has already surpassed 1,000 trillion won and is expected to approach 1,100 trillion won. The government insists on the need to legislate a ‘fiscal rule’ for sound fiscal management, but it is uncertain whether it will pass the National Assembly due to differences between ruling and opposition parties.

According to the February issue of Monthly Fiscal Trends published by the Ministry of Economy and Finance on the 16th, the cumulative managed fiscal balance deficit as of November last year was 98 trillion won, already exceeding the full-year level (-90.6 trillion won). The integrated fiscal balance recorded a deficit of 50.8 trillion won, with the deficit size increasing by 28.5 trillion won compared to the same period last year. As the managed fiscal balance is virtually certain to record a deficit, it will continue a 15-year consecutive deficit record since 2008.

The national budget is generally assessed by the integrated fiscal balance, which is total expenditure minus total revenue, and the managed fiscal balance, which excludes social security fund balances. Once December’s revenues and expenditures are finalized, the annual managed fiscal balance is expected to exceed 100 trillion won and surpass 110 trillion won. This means that about 100 trillion won more was spent than was collected in taxes, excluding future anticipated expenditures.

The reason for the expanding deficit is expenditures increasing faster than revenues. Total revenues increased across national tax revenues, non-tax revenues, and fund revenues. National tax revenues rose to 395.9 trillion won, an increase of 51.9 trillion won from the previous year, thanks to improved corporate performance in 2021. Non-tax revenues reached 30.8 trillion won due to increases in current transfer income and fines. Considering fund revenues of 170.5 trillion won as of November, total revenues already amount to 597.2 trillion won.

However, total expenditures as of November stand at 622.5 trillion won, exceeding total revenues. The planned spending after the second supplementary budget was 679.5 trillion won. The budget was increased by 33 trillion won compared to last year due to COVID-19 crisis response projects, and fund expenditures amounted to 34.3 trillion won, including payments for small business loss compensation.

National debt is ballooning like a snowball. As of the end of November, it stood at 1,045.5 trillion won, with the government bond balance increasing by 105.3 trillion won compared to the end of the previous year. Considering that national debt was 939.1 trillion won at the 2021 settlement, it has risen sharply. It has already surpassed the national debt level of 1,037.7 trillion won projected during the second supplementary budget. However, the Ministry of Economy and Finance explained that considering government bond repayments in December, the year-end figure is expected to converge to the forecasted level.

Despite this situation, the legislation of the fiscal rule has been stalled. The fiscal rule is a system that prevents national debt from exceeding a certain level. Currently, the government has submitted a revision to the National Finance Act to the National Assembly that limits the annual managed fiscal balance deficit ratio to within 3% of the gross domestic product (GDP). However, with recent economic downturns and the heating cost crisis, the supplementary budget has been discussed, making passage difficult. Although ruling and opposition parties are negotiating to hold a public hearing on the fiscal rule, many expect it will be hard to reach an agreement.

Meanwhile, the outstanding amount of government bonds was 952 trillion won last month, with issuance in January amounting to 14.8 trillion won, which is 8.8% of the annual total issuance limit. Of this, 10.5 trillion won was issued through competitive bidding. The average funding interest rate slightly declined from 3.57% the previous month to 3.48%. However, net foreign investment in government bonds decreased by 2.3 trillion won. The Ministry of Economy and Finance stated, “We will strengthen monitoring of foreign capital inflows and outflows, continue institutional improvements to enhance the foreign investment environment, and pursue inclusion in the World Government Bond Index (WGBI).”

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