Finance Minister Hong Nam-ki told the truth when he noted during a parliamentary session this week that South Korea’s state coffers “are being emptied rather than filled.” He made the remark when a ruling party lawmaker asked him why the government “has stacked up grains in the barn” while calling for aggressive fiscal spending.
In fact, the incumbent Moon Jae-in administration has increased government spending at a faster pace than any of its predecessors.
Accordingly, the country’s total national debt grew from 660 trillion won ($563 billion) in 2017, when President Moon took office, to 846 trillion won last year. The numbers are set to rise to 956 trillion won this year and further to 1,077 trillion won next year. Debt issuance by the government has been close to its legal limit.
The ratio of Korea’s national debt to gross domestic product, which remained at 36 percent in 2017, is expected to reach 48.2 percent this year, exceeding the mid-40 percent level that could prompt global rating agencies to downgrade a country’s sovereign credit rating. The figure is forecast to surpass 50 percent for the first time in 2022.
It was his track record as chief economic policymaker that made many people feel awkward about his belated acknowledgment that the country’s fiscal conditions have been worsening.
Hong, who doubles as deputy prime minister for economic affairs, is criticized for having repeatedly caved in to pressure from the ruling Democratic Party of Korea to increase government spending to fund populist programs. He has also been instrumental in offsetting the negative effects of ill-conceived policies initiated by Moon and presidential aides with taxpayers’ money rather than trying to redress the misplaced policy approach.
During his stint that began in 2018, Korea’s state budget has grown nearly 50 percent, with national debt swelling by about 260 trillion won.
He has overseen seven extra budgets in addition to the three regular annual budgets.
The proposed budget for next year, which is subject to parliamentary approval, is set at a record 604 trillion won, up 46 trillion won from this year. The government attributes the increase largely to the need to cope with the economic fallout from the pandemic. But most of it is allocated to finance one-off populist cash handouts, which critics say are designed to help boost voter sentiment in favor of a ruling party candidate for the presidential election in March.
In the eyes of critics, his remark made during Monday’s session of the parliamentary select committee on budget appeared merely intended to leave a record that he had at least warned of the deteriorating fiscal conditions.
More deplorably, he changed his words the following day in the face of a backlash from ruling party lawmakers, who urged him to avoid unnerving people. Hong said his earlier remark might have been deemed provocative, adding that the country’s fiscal conditions remained robust.
It is not the first time he has stepped back from his initial stance. Under pressure from the ruling party, he rolled back his insistence that pandemic relief funds should be provided to more vulnerable people, not to all households.
Amid concerns over long-term fiscal sustainability, the Finance Ministry last year drafted fiscal rules aimed at putting a legal limit on the increase in government spending. But the bar was placed too high, causing criticism that the proposed rules would only be used to justify reckless fiscal expenditures.
Hong recently said that fiscal management might be back on normal track from 2023, passing the responsibility for keeping fiscal soundness to the next administration.
It is his obligation as the government’s chief economic and financial policymaker to ensure discipline and efficiency in using taxpayers’ money without being swayed by political pressure. Hong himself has mentioned such obligation in a post on social media.
He should make the draft fiscal rules tighter and try to pass them through Parliament before he leaves office. It is also necessary to reduce room for wasteful spending in next year’s budget.
He has become the country’s longest-serving finance minister by marking the 1,000th day in office last Saturday. The record would be far from honorable if he continued to do his job as he has done so far.
By Korea Herald (email@example.com