The International Monetary Fund (IMF) said on the 16th that the ratio of government liability to global gross domestic product (GDP) will exceed 100% in 2029. It also said Korea is expected to break 60%. The reasons are increased fiscal expenditure due to the Middle East war and the spread of protectionism, and the recent trend of rising interest rates. The IMF recommended clearly identifying vulnerable groups to be supported in relation to rising energy prices and providing support on a temporary basis.
The IMF released its April Fiscal Monitor and stated accordingly. Each April and October, the IMF publishes a report assessing countries' fiscal conditions and projecting future trends. In the report, government liability is the sum of central and local government liability plus the liability of nonprofit public institutions.
The IMF projected that the global government liability ratio will rise from 95.3% this year to 97.3% next year, 98.8% in 2028, and 100.1% in 2029. The IMF said expenditure pressures are growing due to the Middle East war and protectionism, and Government Bonds yields are rising. It also said that changes in demographics such as aging, as well as financial market risks including a decline in investment as artificial intelligence (AI) productivity falls short of expectations, will affect the rise in the government liability ratio.
For Korea, it expected the government liability ratio to rise from 54.4% this year to 56.6% next year and 58.5% in 2028, then reach 60.1% in 2029. It analyzed that it will continue to rise to 61.7% in 2030 and 63.1% in 2031. Mentioning Korea, the IMF said it is traditionally a country with a strong fiscal position, but by drawing on fiscal space recently, it offset the decline in the government liability ratio seen in advanced economies excluding the United States.
Accordingly, the IMF said to clearly define the vulnerable groups eligible for government fiscal support in relation to the recent rise in energy prices and provide support on a temporary basis. It also said to set medium-term goals (framworks) for fiscal sustainability and rationalize fiscal expenditure whose effectiveness is unclear.