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Finance minister defends proposed rules for fiscal soundness

All News 15:40 October 06, 2020

SEJONG, Oct. 6 (Yonhap) -- Finance Minister Hong Nam-ki said Tuesday that proposed rules to ensure fiscal soundness in 2025 are "not loosening," rebutting criticism that the government may not seek to keep a tight rein on public debt.

Hong made the remarks a day after the ministry unveiled details of the rules that will keep the nation's debt-to-GDP ratio to 60 percent and its consolidated fiscal balance at minus 3 percent in 2025.

"As the debt-to-GDP ratio is rising to 60 percent, the fiscal rules are not loosening," Hong told reporters.

This year, the government's fiscal deficit is also expected to stand at 4.4 percent, Hong said.

Public debt is expected to rise in coming years because fiscal policy should play an active role in reviving economic growth in the wake of the coronavirus pandemic, Hong said.

Efforts to narrow fiscal deficit are "desirable" at a time when public debt is on the rise, Hong said.

Finance Minister Hong Nam-ki, who doubles as the deputy prime minister for economic affairs, speaks during a press conference at the government complex in Sejong, central South Korea, on Oct. 5, 2020. (Yonhap)

Under the rules, the government will be required to draw up measures to ensure fiscal soundness if the fiscal deficit exceeds the limit.

However, such rules will be exempted in a time of crisis, like the coronavirus pandemic, the ministry said.

South Korea's debt-to-GDP ratio is expected to reach 51.2 percent in 2022, 55 percent in 2023 and 58.6 percent in 2024, according to the ministry.

The rules come amid concerns that this year's four extra budgets could strain fiscal health.

Earlier this month, the government drew up a fourth extra budget worth 7.8 trillion won (US$6.6 billion), aimed at helping small merchants and self-employed people cushion the economic impact of a recent resurgence of the new coronavirus.

It marked the first time in 59 years for the South Korean government to allocate four extra budgets in a single fiscal year.

The four extra budgets are expected to take the nation's debt-to-GDP ratio to 43.9 percent this year, compared with just below 40 percent before the pandemic.

Pounded by the coronavirus outbreak, the nation's economy has plunged into a recession, as its gross domestic product shrank 3.3 percent in the second quarter after a 1.3 percent on-quarter retreat three months earlier.


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