With the International Monetary Fund (IMF) recommending that the Korean government introduce a fiscal anchor (anchor·target), the ruling and opposition parties in the National Assembly agreed to hold a public hearing to introduce fiscal rules. Fiscal rules are a system similar to the fiscal anchor recommended by the IMF that manages fiscal soundness indicators so they do not exceed a certain level.
According to political circles on the 25th, the Economic and Finance Subcommittee of the Strategy and Finance Committee of the National Assembly recently agreed in a meeting to hold a public hearing to introduce fiscal rules. The introduction of fiscal rules was reviewed under the Park Geun-hye, Moon Jae-in, and Yoon Suk-yeol administrations, but it did not pass the National Assembly. Under the Lee Jae-myung administration, many expected it would not be easy to introduce fiscal rules amid an expansionary fiscal stance.
However, a breakthrough came as ruling and opposition lawmakers agreed at a recent Strategy and Finance Committee fiscal subcommittee meeting to hold a public hearing to introduce fiscal rules. Park Su-young of the People Power Party said at a meeting on the 16th, "Since there was no standing committee-level public hearing even in the 21st National Assembly, now that it has changed to the 22nd National Assembly, we need to hear from experts."
Chin Sung-jun of the Democratic Party of Korea also said, "Because it involves quite complex matters, including whether to proceed with a new enactment or amend the National Finance Act, it would be better to first push for a public hearing at the standing committee or subcommittee level," and suggested, "Let's proceed with the review after gathering various opinions through a public hearing." Chin added, "Even agreeing to hold a public hearing is a big step forward," noting, "Until now it was completely blocked at the source."
The introduction of fiscal rules has been pursued since the Park Geun-hye administration, but it still has not passed the National Assembly. In 2020, the government also submitted to the National Assembly a Korean-style fiscal rule to manage the ratio of national debt to gross domestic product (GDP) within 60% and the fiscal deficit ratio within "-3%."
Under the Lee Jae-myung administration, the expansionary fiscal stance has become clear, raising concerns about fiscal deficits. According to projections by the Ministry of Economy and Finance, without government-level structural reform, the ratio of national debt to GDP, which is 49.1% at the end of this year, is expected to jump to 71.5% in 10 years. Accordingly, lawmakers on the Strategy and Finance Committee from the People Power Party have continued to call for fiscal reform, including the introduction of fiscal rules.
Rahul Anand, head of the IMF mission to Korea who recently visited Korea, also warned at a briefing on the 24th on the results of the IMF's annual consultation that "(Korea) needs long-term fiscal reform." While the IMF raised this year's growth outlook for Korea by 0.1 percentage point from its previous projection, it noted that Korea should take a more proactive approach to fiscal management in the medium to long term to prepare for aging and other factors.
Specifically, the IMF recommended introducing a medium-term fiscal anchor. A fiscal anchor is a concept similar to "fiscal rules" that manage the national debt below a certain ratio. It means setting specific targets such as national liabilities or fiscal deficits when establishing medium- to long-term fiscal plans on a 3- to 5-year basis.