The government formalized the introduction of fiscal rules at a fiscal strategy meeting on July 7, 2022. This study analyzes the revised fiscal rules’ impact based on NABO’s Long-Term Fiscal Projections 2022–2070 (Aug 2022).
The debt-to-GDP ratio by 2070 is forecasted to range from 77.3% to 192.6% based on the assumption that the discretionary spending level can be adjusted and controlled (medium population projection scenario). Applying different population projection scenarios (low, medium, and high), the 2070 debt-to-GDP ratio is expected to range from 183.9 to 203.1% (based on discretionary spending scenario 1).
Total revenue is expected to increase by 0.8% per annum, from 603.9 trillion won (27.8% of GDP) in 2022 to 883.1 trillion won (23.8% of GDP) in 2070. Total spending is expected to grow by an average of 1.4% a year, from 689.9 trillion won (31.8% of GDP) in 2022 to 1,341.9 trillion won (36.2% of GDP) in 2070. The consolidated fiscal deficit is forecasted to increase from 86.0 trillion won (4.0% of GDP) in 2022 to 458.7 trillion won (12.4% of GDP) in 2070. The national debt is expected to grow by an average of 4.0% yearly from 1,068.8 trillion won (49.2% of GDP) in 2022 to 7,137.6 trillion won (192.6% of GDP) in 2070.
NABO’s long-term fiscal projections show a long-term increase in the debt-to-GDP ratio. Depending on the target debt-to-GDP ratio set in the financial rules, the improvements needed in the operational fiscal balance to achieve the goal vary. The necessary improvements in the operational balance to meet the target debt-to-GDP ratio depend on the duration it stays below the target. When the proposed fiscal rules are applied to NABO’s long-term fiscal outlook, the operational fiscal deficit should remain at an average level of 1% of GDP in the long term (2030–2070) to maintain a debt-to-GDP ratio of 60%.