NABO Conducts 2019 Annual Consultation with International Credit Rating Agency Moody’s
On April 24th, 2019, NABO Chief Lee Jonghoo welcomed the delegation for the annual consultation from Moody’s, an international credit rating agency, and discussed Korea’s overall fiscal and economic issues.
This bilateral annual consultation meeting was held for the first time upon the request of Moody’s. The consultation team commended NABO’s competency as a parliamentary fiscal think tank operating from a politically neutral position and expressed its intention to build a network between the two institutions.
Moody’s expressed its appreciation for how this annual consultation has significantly helped enhance its understanding of the Korean economy and fiscal situation, asking to continue exchanges.
Meanwhile, starting with NABO, the delegation conducted annual consultations with major Korean institutions including the Ministry of Economy and Finance and the Bank of Korea over three days.
The following is a summary of the bilateral consultation between NABO and Moody’s.
❑ Discussion on the mid-term economic forecast and long-term fiscal forecast from NABO.
◦ Moody’s inquired about the difference between NABO’s previous and current forecasts. NABO explained that the fiscal balance and national debt forecasts of 2018 were updated from those of 2016 in accordance with changes in population forecasts, macroeconomic forecasts and government fiscal policies.
◦ Moody’s showed interest in the background of the fiscal balance and national debt forecast adjustments, requesting related information.
❑ Exchanges of views regarding ways to increase revenues to prepare for increased expenditures regarding an aging society and the need for government support for social security funds such as the National Pension Service.
◦ NABO provided an explanation mainly about Korea’s health insurance and the National Pension Service, which incur the majority of aging-related expenditures.
-Regarding health insurance, NABO mentioned that since Korea’s health insurance rate is lower than the OECD average, there is room for a rate increase through which expenditures related to aging may be covered.
-NABO also emphasized that since the structure of the National Pension fund has allowed reserves to accumulate thus far, it has not yet reached a worrisome stage; and that the fiscal soundness of the National Pension Service is strong since the system undergoes improvements every 5 years through fiscal calculations.
❑ NABO’s inquiry on the reason why Moody’s forecast for Korea’s 2019 economic growth rate fell to 2.1%.
◦ Moody’s provided an explanation based on its projection of the Chinese economic growth rate this year as significantly conservative compared to that of other agencies. Since a slowdown of the Chinese growth rate is deemed inevitable in the medium-to-long term, this affected the forecast for Korea as China’s major trading partner.
◦ Based on the fact that NABO’s estimation of the Korean economic growth rate this year is 2.5%, the two agencies held an in-depth discussion on the impact of an execution of the recently earmarked supplementary budget on the Korean economic growth rate.