The Ministry of Strategy and Finance announced last month a total of 689 government-subsidized programs would be abolished or merged under the 2015 and 2016 state budgets. Making the announcement, the ministry emphasized it had overachieved on its goal to do away with 600 similar and overlapping programs by the end of 2017.

In fact, the overhaul was long overdue, given calls have been mounting for eliminating the inefficiency of government-funded programs. For instance, more than three government ministries are now involved in a project designed to improve housing conditions for low-income residents, wasting money due to poor coordination.

MOSF officials expect the restructuring of government-subsidized programs to result in savings of about 250 billion won ($219 million) in the state budget.

The ministry’s announcement, however, seems to be drawing less public praise than calls for further accelerating fiscal reform. Experts note the reform should be carried out with a greater sense of urgency as fiscal deficits have become a main factor behind the country’s increasing national debt.

According to the Finance Ministry, the ratio of Korea’s national debt to its gross domestic product is forecast to rise from 38.5 percent this year to 40.1 percent in 2016, 41.0 percent in 2017 and 41.1 percent in 2018 before declining to 40.5 percent in 2019. The amount of the debt owed by the central and regional governments is projected to increase from 579.5 trillion won to 761 trillion won over the cited period.

But critics indicate the estimates by the ministry are based on unrealistic or unachievable presumptions.

Its fiscal management plan for 2015-19 presumes Korea’s economy will grow by 4.2 percent this year, 5.0 percent in 2016, 5.3 percent in 2017 and 2018 each and 5.5 percent in 2019. Finance Minister Choi Kyung-hwan, however, recently admitted this year’s growth would fall short of the targeted 3.1 percent. Local economic research institutes have also expressed skepticism about the government’s revised 2016 growth forecast of 3.3 percent, saying it is more realistic that the growth rate remains in the upper 2 percent range. Most economists ― probably government policy makers themselves ― doubt that the country’s economy will expand by more than 5 percent from 2017 on.

Questions have also been raised about the Finance Ministry’s plan to cut discretionary fiscal spending ― as opposed to obligatory or pre-set expenditure ― by an annual average of 0.7 percent over the five-year period. Critics indicate it will be virtually impossible for the government to reduce ― let alone freeze ― discretionary fiscal expenditure.

What experts see as a more plausible projection is one put forward last week by the National Assembly Budget Office. Based on a more realistic assumption that the discretionary fiscal spending will grow by an estimated average annual price hike rate of 1.4 percent over the cited period, the office predicted that Korea’s national debt to GDP ratio would surge to 43.4 percent in 2019, with the debt amount exceeding 802 trillion won.

“It is necessary to pursue a budget policy aimed at helping revitalize the economy in tandem with efforts to strengthen fiscal soundness over the long term,” said Baek Ehung-gi, professor of economics and finance at Sangmyung University in Seoul.

Experts caution that Korea should not feel complacent with the fact that its debt to GDP ratio is lower than the average for the 34-member Organization for Economic Cooperation and Development. According to analysis by the NABO, Korea’s estimated debt to GDP ratio of 41.4 percent in 2018, when 14 percent of its population is projected to be 65 or older, is far higher than the corresponding figures of 32.6 percent and 36.8 percent France and Germany recorded in 1979 and 1991, respectively, when the two west European countries became aged societies.

This comparison shows Korea should be more active in managing its national debt, experts say.

Kim Kwang-mook, assistant chief for budget analysis at NABO, said at a debate last month that ensuring fiscal soundness would require a more strategic approach of evaluating the efficiency of fiscal expenditure not by each project, but by a bunch of similar projects. The office has also raised the need to consider introducing fiscal rules to place limits on the debt to GDP ratio and the rate of growth in fiscal spending.

President Park Geun-hye’s administration has ruled out the possibility of raising tax rates to increase revenues during her five-year term that ends in February 2018. But some experts argue it is now necessary to begin discussion on how to change the overall taxation system based on social consensus.

By Kim Kyung-ho (khkim@heraldcorp.com)