EJONG -- The Yoon Suk-yeol administration would drastically reduce South Korea’s fiscal deficit starting from next year by restricting expansionary policies to improve the nation‘s fiscal soundness.

According to government officials on Monday, the Ministry of Economy and Finance has set the goal of slashing the ratio of fiscal deficit to gross domestic product to 3 percent or under -- the first time in four years -- in its national budget plan for 2023.

In addition, the Finance Ministry plans to further lower the fiscal deficit-to-GDP ratio to about 2 percent if the national debt-to-GDP ratio exceeds the 60 percent mark.

The ministry will finalize the plan after consulting the matter with the ruling People Power Party and President Yoon within this week.

The government has been waiting for parliamentary approval for the passage of the bill on strict management of fiscal deficit.

The ratio of fiscal deficit to GDP stood at 1.9 percent in 2019, but started to increase to 3.5 percent in 2020, 5.6 percent in 2021 and 4.4 percent in 2022 over a series of expansionary measures to cushion COVID-19 shocks.

The fiscal deficit ranged between 71 trillion won ($53 billion) and 112 trillion won during 2020-2022 after staying at 37 trillion won in 2019.

The country‘s deficit-to-GDP ratio is expected to reach 5.1 percent this year. National debt grew more than 400 trillion won, or some 62 percent, over the past five years. Sovereign debt is expected to reach 1,070 trillion won this year.

To attain the goal of lowering the ratio, the government is likely to slash next year’s state spending below this year‘s budget of 679.5 trillion won.

The 2023 national budget could be set at around 640 trillion won, up some 5 percent from this year‘s national budget of 607.7 trillion won, according to the plan.

The plan comes amid gloomy outlooks on the global economy from the prolonged war between Ukraine and Russia as well as the slowdown in China’s GDP growth.

The lackluster local real estate market and record-high household debt, which restricts consumption, could also be core factors that could lower the GDP growth. In addition, the nation’s imports are outstripping exports, aggravating the trade deficit.

By Kim Yon-se (kys@heraldcorp.com)