The Korea Herald

지나쌤

Seoul seeks to cap ratio of national debt to GDP

By Korea Herald

Published : May 26, 2016 - 16:19

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The South Korean government said it will seek to cap the proportion of national debt to gross domestic product as part of efforts to preemptively enhance fiscal stability in the long term.

In a meeting presided over by Finance Minister Yoo Il-ho in Seoul, the government discussed follow-up measures to drafts previously floated at the April fiscal strategy meeting that aimed at better managing tax revenue, budget and public pension funds.


“The government plans to submit a bill on improving fiscal stability to the National Assembly in September,” Yoo said in the meeting.

“The bill will include putting a limit on national debt (in proportion to GDP),” he said.

The government’s move is interpreted as a preemptive measure as Korea’s national debt ratio to GDP is relatively low at 38 percent as of 2015, compared to the average 115.2 percent of the Organization for Economic Cooperation and Development.

The government also seeks to submit so-called “Pay-go” bill to the National Assembly in September, to obligate lawmakers to come up with funding methods when seeking a bill that requires fiscal expenditure.

To alleviate financial burdens on the aging population, Seoul also plans to aggressively seek investment diversification and outsourcing to raise the profitability of seven public pension funds worth 575 trillion won ($487 billion). They currently produce about 2.2-4.6 percent returns, according to the ministry.

“The government will seek to consolidate estimated growth outlooks and the estimation timing of pensions to precisely assess their long-term sustainability. Then, it will prepare further measures to stabilize their fiscal status,” Yoo said.

Seven public pension funds include the largest National Pension Service with a 512 trillion won fund, the Teachers’ Pension, Government Employees Pension Service and Military Mutual Aid Association.

The ministry’s move comes as public pension funds may dry up faster than expected, as Korea’s low birth rate and aging population might accelerate their spending amid slowing income growth.

The NPS expects its pension fund will decrease from a peak of 2,561 trillion won in 2043 and completely dry up by 2060.

By Kim Yoon-mi (yoonmi@heraldcorp.com)