South Korea should try to cut back on government spending in a bid to keep state debt from exceeding 60 percent of its growth domestic product over the long haul, the finance ministry said Friday.

In a long-term fiscal outlook, the ministry said if state expenditures keep pace with the country's nominal growth rate in the coming decades, the size of state debt could rise to 62.4 percent of GDP in 2060, significantly higher than a 42.3 percent estimate for next year.

"South Korea's debt will invariably rise as it has to spend steadily more to prop up its welfare infrastructure, even though it has to cope with more modest growth down the line," the ministry said.

Such a development is expected as Asia's fourth-largest economy suffers from a rapidly aging population, which will reduce the country's workforce and adversely affect investment and industrial output.

The country's population is expected to peak in 2030, with the labor force to hit its zenith next year.

According to the ministry, South Korea's GDP growth will hover at around 3.6 percent annually from 2016 through 2020 before falling off to around 2.6 percent in the 2020s and dropping below the 2 percent annual mark from 2030 onwards. The country's GDP growth is projected to average around 1.1 percent from 2050 to 2060.

The ministry, however, said that if spending is kept under control and there is a determined effort to regulate mandatory spending, as well as discretionary expenditures, government debt may actually dip to 38.1 percent of GDP in 2060.

Mandatory expenditures refer to outlays stipulated by law that cannot be changed. These generally encompass spending related to welfare and medicare.

"This is dependent on expenditures growing at a slower pace than nominal GDP growth," said Deputy Minister for Fiscal Affairs Noh Hyeong-ouk. "Of paramount importance is not to increase mandatory spending that cannot be cut."

On the positive side, the official said that while the number of senior citizens will continue to grow in the 2030s and 2040s, this too is expected to hit its peak in 2049, which will lessen the government's burden.

Even if government debt hits 62.4 percent, it is not far above numbers recommended by the Organization for Economic Cooperation and Development, he said. The OECD currently maintains that government debt should be held in check at around 60 percent of the GDP.

On the issue of state pensions, the ministry's report said that at the current pace, the fund will start to post a deficit in 2044 and be completely dried up by 2060. As of September, the size of assets held by the National Pension Service stood at over 500 trillion won ($429.3 billion).

"The South Korea welfare structure is not sustainable because it is set up to give large returns despite low input," said Finance Minister Choi Kyung-hwan, who chaired a fiscal policy meeting.

The policymaker said that broad social consensus needs to be reached on reforming the system.

Seoul has maintained that the country cannot follow the example of some European countries that call on people to pay a lot up front so they can receive more after they retire, it will soon have to find its own middle ground.

Related to the national pension, the finance ministry said that the Korea Teachers Pension will also start posting a deficit in

2027 before being depleted in 2042, with the country's health insurance to face depletion around 2025.

The country's industrial accident compensation insurance will fall into the red in 2019, but the size will be manageable while the employment insurance should not be seriously affected, it said.

The ministry also said another way to improve the country's long-term debt situation is to prop up growth and effectively deal with the low birthrate.

The country has one of the lowest birthrates among OECD members, which is a drag on growth. Seoul is expected to announce a plan to bolster its birthrate within the month, although the effects of such a measure will not be felt for several decades. (Yonhap)