A shopper passes by a paper shop in Namdaemun market in Seoul on Wednesday. (Yonhap)
Despite the rosy picture painted by the government about its third supplementary budget of 35.3 trillion won ($29 billion) announced Wednesday, concerns are rising about the nation’s fiscal soundness as national debt will increase by around 100 trillion won, propelling the debt-gross domestic ratio to a record-high.
The proposal follows the first and second supplementary budgets worth a combined 23.9 trillion won, allocated in recent months, to minimize the economic fallout from the COVID-19 outbreak.
According to calculations based on data released by the government, the country’s national debt is forecast to jump by 99.4 trillion won on-year to 840.2 trillion won, which will raise the national debt to GDP ratio to 43.5 percent.
The country’s operational budget balance -- excluding the four major social welfare funds from the consolidated balance -- is forecast to record a deficit of 112.2 trillion won, when the National Assembly approves of the third extra budget.
This would be the first time the balance -- often used as a yardstick to determine the government’s actual fiscal health -- would mark a annual deficit of over 100 trillion won, and is nearly double its previous record-high deficit of 54.4 trillion won last year.
The budget had marked much less deficit spending in battling the risks from previous financial crises, in 1998 and 2009, when the nation was reeling from the economic fallouts from the Asian financial crisis in 1997 and the global financial crisis in 2008. The deficit increased by 24.9 trillion won and 43.2 trillion won, respectively.
The consolidated fiscal balance, which is the total income minus total spending, has been projected to reach 76.4 trillion won this year.
Both the operational budget balance and consolidated fiscal balance would mark the deepest dive into the red since the South Korean government was established in 1948.
The operational budget balance deficit-GDP ratio was projected to reach 5.8 percent, according to the government, the first time it would surpass 5 percent. The corresponding figures for 1998 and 2009 stood at 4.6 percent and 3.6 percent, respectively.
To deal with the fast-growing debt, the government plans to float bonds worth 97.3 trillion won this year, around 67.7 trillion won more than last year’s issuance.
Despite growing concerns over the fast-growing debt, officials have claimed that the country’s fiscal soundness is healthier compared to most Organization for Economic Cooperation and Development member states and that the country must endure the imminent burden.
“We must bear with the surge in debt-GDP ratio due to the third supplementary budget if it could lead to swift economic growth and bring about recovery in fiscal soundness,” Deputy Prime Minister and Finance Minister Hong Nam-ki said Wednesday.
While noting the increased momentum in debt growth for 2019, 2020 and 2021, Hong said that the Finance Ministry has been “extremely alert” on the matter.
But the fiscal chief urged lawmakers to swiftly approve the bill, highlighting that the extra budget plan will become effective only if it is proceeds swiftly.
If approved by the parliament, more than 75 percent of the extra budget will be spent within three months, the ministry said.
By Jung Min-kyung (email@example.com)