The expansionary fiscal policy of the past five years is returning to debt먹튀검증. The last government issued more than 300 trillion won of deficit government bonds to respond to Corona 19, and as a result, the annual interest burden alone is 20 trillion won. Even before the COVID-19 crisis, the voices of international organizations that were persistently demanding the Korean government to expand finances were also heard. As such, a red flag has been turned on for Korea’s fiscal soundness.
According to the National Assembly Budget Office on the 28th, interest expenditure on national debt last year amounted to 18.8 trillion won. The estimated expenditure this year is 22.9 trillion won, surpassing 20 trillion won, and is expected to rise to 30.9 trillion won in 2026. Interest spending on government debt can increase with interest rate changes even if government bond issuance does not increase. “There is a possibility that the interest burden on the national debt will increase according to the recent trend of rising interest rates along with the increase in the size of the national debt,” the Ministry of Planning and Planning said.
The rapid increase in interest expenditure is analyzed as the effect of the expansionary finances that the Corona 19 crisis triggered. The government actively issued deficit government bonds to respond to the corona. The Moon Jae-in administration’s five-year deficit government bond issuance alone amounts to 316 trillion won. It is more than double the amount issued by the Park Geun-hye government (146 trillion won). As a result, the burden of interest payments increased. I can’t even dream of repaying the principal. Since tax revenues are also decreasing this year, the government is struggling to repay the principal and interest.
International organizations that had positively evaluated the expansionary finances of the previous government also changed their stance. Since 2020, the International Monetary Fund ( IMF ) has emphasized the need for expansionary finance to respond to Corona 19. The report on the results of the 2021 annual meeting also mentioned that “given the significant level of idle economic power and the downside risks to economic recovery, further easing of fiscal and monetary policy will speed up the pace of economic normalization.” But in April of last year, Martin Kaufman, head of the IMF , said, “It may become increasingly important to select aid targets more carefully to help affected sectors and continue to support policy normalization.” With the nuance that fiscal normalization is necessary, the direction of policy advice has turned 180 degrees.
International credit rating agencies are also urging measures to manage fiscal soundness, such as fiscal rules. International credit rating agency Moody’s pointed out in May that it is urgent to legislate fiscal rules that prevent reckless increase in national debt while maintaining Korea’s national credit rating and rating outlook. International credit rating agency Fitch recently downgraded the country’s credit rating for the United States, citing deteriorating fiscal soundness. It is pointed out that efforts to manage fiscal soundness should be strengthened given the situation in Korea, which is more sensitive to ratings by credit rating agencies than the United States.