In a recently released report, the International Monetary Fund (IMF) said Korea's government liability (D2) ratio will rise from 54.4% this year to above 60% in 2029, naming Korea as a country expected to see a "significant increase in the liability ratio." The government and the presidential office pushed back, saying, "IMF projections have not always been right," and calling them "exaggerated."
The IMF releases twice-yearly, in April and October, its outlook for the liability ratio to gross domestic product (GDP) for the next five years. Comparing the IMF's medium-term outlooks released from 2014 to 2026 with actual results shows the trajectory largely played out as projected.
Lee Cheol-in, a professor in the Department of Economics at Seoul National University who served as president of the Korean Association of Public Finance, said, "From the government's perspective, there may be room to feel the IMF figures are Director, but objectively, the current pace of liability growth is so concerning that not worrying about it would be stranger."
◇ IMF outlined Korea's liability surge path even before COVID
ChosunBiz on the 26th compared the IMF's projections in its Fiscal Monitor reports published from 2014 to 2026 for Korea's D2-to-GDP ratio with the actual D2 results. D2 is an indicator that adds the liabilities of nonprofit public institutions such as the National Health Insurance Service and Seoul Metro to government debt (central and local government liabilities), and is mainly used for cross-country liability comparisons. Each year's D2 result is compiled and released at the end of the following year.
Previously, the IMF expected Korea's liability ratio to generally remain within 40% from 2016 to 2019, and it did. The IMF also predicted relatively early, in 2019, that the ratio would surge to nearly 50% after COVID.
In particular, the outlook made in Oct. 2019 through 2023 had an error of only 0 to 2 percentage points (p). Comparing IMF projections and actual figures shows ▲2019 40.1% (projection) · 39.7% (actual) ▲2020 43.4% · 45.9% ▲2021 46.4% · 48% ▲2022 49% · 49.8% ▲2023 51.3% · 50.5%, with little difference.
In an explanatory release on the 16th, the government noted that "the IMF (April 2021 issue) projected the 2023 D2 ratio would exceed 60%, but the final result was 50.5%," indicating that projections differed from reality. Still, the overall trend of an increase was not much different. Moreover, the actual liability ratio being lower was also influenced by the government's post-2022 push for a sound fiscal stance, such as curbing the growth rate of total expenditure to reduce the ratio.
◇ Government eagerly adopted extra budgets when IMF urged "expansionary fiscal"
Meanwhile, the IMF did not always call for austerity in Korea. From 2016 to 2019, the IMF viewed Korea as having considerable fiscal space and even recommended an expansionary fiscal stance. In 2019, the Korean government heeded this IMF recommendation and drew up a supplementary budget, and during the COVID phase in 2020–2021 it carried out six supplementary budgets in total. A researcher at a private think tank said, "One could say the government cherry-picks the IMF's messages depending on the timing."
Fiscal experts say the government should not brush off the IMF's warning. Kim Woo-cheol, a professor in the Department of Taxation at the University of Seoul and president of the Korean Association of Public Finance, said, "If you look at the government's own midterm fiscal management plan, it shows fiscal balance deficits of around 4% of GDP persisting for a considerable period. Such a plan is hard to read as a signal of actively managing fiscal soundness," adding, "The IMF's warning can be seen as a natural reaction to this trajectory."
Lee Cheol-in, a professor in the Department of Economics at Seoul National University, said, "Failing to make even basic efforts such as introducing fiscal rules could be read from the outside as 'using fiscal space to the limit.'"