SEOUL– South Korea aims to draw up a stricter fiscal rule that would mandate a sharp reduction of the deficit if the national debt exceeds 60 percent of gross domestic product (GDP), the finance minister said Thursday.

The move is aimed at improving fiscal soundness that has been compromised by years of expansionary fiscal spending under the preceding liberal government as the Yoon Suk-yeol government seeks to implement a belt-tightening fiscal policy.

The government plans to propose a new rule that would limit the fiscal deficit to 3 percent of GDP, Finance Minister Choo Kyung-ho told a forum on public finances.

Under the proposed rule, if the debt-to-GDP ratio at any point exceeds 60 percent, the government is required to lower the fiscal deficit to 2 percent or less, he said.

This is designed to manage the debt ratio below 60 percent over the long term. The debt-to-GDP ratio is expected to reach 49.7 percent this year, according to a government estimate.

The envisioned rule is stricter than a fiscal rule that the preceding Moon Jae-in government proposed in 2020.

The finance ministry previously proposed a fiscal rule that would limit the national debt to 60 percent of the country’s GDP or its fiscal deficit to 3 percent starting in 2025. The rule is pending at the National Assembly.

South Korea’s national debt grew more than 400 trillion won (US$303 billion) or some 62 percent over the past five years, according to the ministry. The sovereign debt is expected to reach 1,070 won this year.

In the first half, the country logged a fiscal deficit of 101.9 trillion won, larger than a shortfall of 79.7 trillion won a year earlier.

The government aims to sharply reduce next year’s national budget below the 679.5 trillion won created for this year’s total expenditures in an effort to enhance fiscal health.

Source: Yonhap News Agency