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Korea is seeking to lower its debt by more than 4 percent to below 30 percent of its gross domestic product by 2015 to boost fiscal soundness amid spiraling household borrowing and social spending.
The latest roadmap for the debt sustainability of Asia’s fourth-largest economy was unveiled Saturday at a strategic meeting for national finance at Cheong Wa Dae, presided over President Lee Myung-bak and attended by ministers, other cabinet members and private experts.
To that aim, the government plans to dispose of its shares in state-run enterprises, better manage public-sector assets and restructure social overhead capital investments that were augmented in the wake of the 2007-8 global financial crisis.
It could also adjust the list of tax-free items and step up its crackdown on rampant tax evasion.
The Finance Ministry said those measures would be reflected in its 2013 budget and a national fiscal management framework for 2012-2016.
“Fiscal soundness is a crucial task not only for the current administration but for the next,” Lee was quoted as telling the meeting.
Experts have warned that snowballing debt owned by households and public firms, coupled with rapidly growing welfare expenditures, are heaping burdens on the national economy.
Korea’s debt-to-GDP ratio reached 34 percent in 2011, up 0.6 percentage points from a year ago, ministry data shows. That is still one of the lowest among the OECD members. With public-sector debt taken into account, however, the figure shoots up to nearly 69 percent.
The national debt, which includes both central and local governments’ borrowing, climbed more than 7 percent on-year to 420.7 trillion won ($370 billion) in 2011, according to the data.
The upward trend has prompted policymakers to prop up public finances as growth is projected to slow down for this year and the next, taking its toll on tax revenues and their plans to balance the country’s books by 2013.
Seoul aims to reduce the debt ratio to 33.3 percent this year and 31.3 percent in 2013.
Lee’s remarks also coincide with an intensifying battle for greater social benefits between the ruling and opposition camps in the run-up to the December presidential vote as Koreans wrestle with an ever-stoking strife between the haves and have-nots, squeezing the middle-class.
Conservatives call for selective welfare focusing on providing assistance to those most in need, while liberal opposition favors universal programs and more taxes on the rich.
In a recent economic survey, the OECD urged Korea to carefully formulate welfare programs, given that its ageing population alone would jack up social spending to as high as 20 percent of GDP by 2050.
OECD secretary general Angel Gurria told Lee on Friday that Korea is “not in a position to embark on outright welfare policies.”
However, Fitch Ratings, a leading credit rating agency, said Seoul’s welfare outlays may hit 89 trillion won after elections but that will not necessarily affect its fiscal health.
Korea’s year-on-year GDP expanded 2.8 percent in the first quarter of this year, according to the Bank of Korea. OECD forecasts the figure for the whole of 2012 will reach 3.5 percent.
By Shin Hyon-hee (heeshin@heraldcorp.com)
The latest roadmap for the debt sustainability of Asia’s fourth-largest economy was unveiled Saturday at a strategic meeting for national finance at Cheong Wa Dae, presided over President Lee Myung-bak and attended by ministers, other cabinet members and private experts.
To that aim, the government plans to dispose of its shares in state-run enterprises, better manage public-sector assets and restructure social overhead capital investments that were augmented in the wake of the 2007-8 global financial crisis.
It could also adjust the list of tax-free items and step up its crackdown on rampant tax evasion.
The Finance Ministry said those measures would be reflected in its 2013 budget and a national fiscal management framework for 2012-2016.
“Fiscal soundness is a crucial task not only for the current administration but for the next,” Lee was quoted as telling the meeting.
Experts have warned that snowballing debt owned by households and public firms, coupled with rapidly growing welfare expenditures, are heaping burdens on the national economy.
Korea’s debt-to-GDP ratio reached 34 percent in 2011, up 0.6 percentage points from a year ago, ministry data shows. That is still one of the lowest among the OECD members. With public-sector debt taken into account, however, the figure shoots up to nearly 69 percent.
The national debt, which includes both central and local governments’ borrowing, climbed more than 7 percent on-year to 420.7 trillion won ($370 billion) in 2011, according to the data.
The upward trend has prompted policymakers to prop up public finances as growth is projected to slow down for this year and the next, taking its toll on tax revenues and their plans to balance the country’s books by 2013.
Seoul aims to reduce the debt ratio to 33.3 percent this year and 31.3 percent in 2013.
Lee’s remarks also coincide with an intensifying battle for greater social benefits between the ruling and opposition camps in the run-up to the December presidential vote as Koreans wrestle with an ever-stoking strife between the haves and have-nots, squeezing the middle-class.
Conservatives call for selective welfare focusing on providing assistance to those most in need, while liberal opposition favors universal programs and more taxes on the rich.
In a recent economic survey, the OECD urged Korea to carefully formulate welfare programs, given that its ageing population alone would jack up social spending to as high as 20 percent of GDP by 2050.
OECD secretary general Angel Gurria told Lee on Friday that Korea is “not in a position to embark on outright welfare policies.”
However, Fitch Ratings, a leading credit rating agency, said Seoul’s welfare outlays may hit 89 trillion won after elections but that will not necessarily affect its fiscal health.
Korea’s year-on-year GDP expanded 2.8 percent in the first quarter of this year, according to the Bank of Korea. OECD forecasts the figure for the whole of 2012 will reach 3.5 percent.
By Shin Hyon-hee (heeshin@heraldcorp.com)
