NABO Medium-Term Fiscal Projection: 2019~2028
Published on 17 October 2019
Published by Estimates and Tax Coordination Division of the Estimates and Tax Analysis Office
In the NABO Medium-Term Fiscal Projection: 2019-2028 report, a projection of future fiscal changes is provided under the assumption that policy tasks are implemented as suggested in the 2020 Budget Plan, submitted by the government to the National Assembly, as well as the National Fiscal Management Plan for 2019-2023, which contains the general direction of and resource allocation plans for fiscal management over the next five years.
The period of NABO’s fiscal projection is for 10 years (from 2019 to 2028), forecasting changes in indicators of overall fiscal performance including total revenues, total expenditures, fiscal balance and government debts. The fiscal projection is first conducted by applying category-specific estimation models composed of revenues and estimations, based on Statistics Korea’s estimation of population and NABO’s internal macroeconomic forecast. The fiscal balance and government debts are calculated based on this projection.
According to the recent NABO fiscal projection, total revenues are expected to annually increase by 3.8% on average from 471.0 trillion won in 2019 to 659.2 trillion won in 2028, while total expenditures are expected to annually increase by 4.5% on average from 475.4 trillion won in 2019 to 703.5 trillion won in 2028. Among total expenditures, annual mandatory expenditures are expected to increase by 5.6% on average from 239.8 trillion won in 2019 to 390.2 trillion won in 2028, and the weight of mandatory expenditures among total expenditures is expected to increase from 50.4% (in 2019) up to 55.5% (in 2028). The operating fiscal balance is expected to surge from －45.7 trillion won in 2019 to －94.3 trillion won in 2023 and revert to a reduced deficit gap in 2028 of －79.3 trillion won; while government debt will increase from 734.8 trillion won in 2019 to 1,490.6 trillion won in 2028. The government debt-to-GDP ratio is expected to rise from 38.0% (in 2019) up to 56.7% (in 2028). A comparison between NABO’s fiscal projection (the forecasted value after incorporating policy changes) and the NABO baseline (the forecasted value assuming that the incumbent system is maintained) indicated that in terms of total revenues, the fiscal projection will fall five to seven trillion won below the baseline each year from 2019 to 2028, falling short by a total of 54.6 trillion won. In terms of total expenditures, the fiscal projection value is expected to be 259.1 trillion won higher over the next 10 years against the baseline. Since the projected fiscal revenues are lower than the baseline while the projected fiscal expenditures are higher than the baseline, the cumulative fiscal deficit over 10 years will reach 313.7 trillion won, leaving government debt figures exceeding the baseline by 293.5 trillion won.
When comparing the outcomes of the National Fiscal Management Plan (NFMP) and NABO’s fiscal projection by each category, in terms of total revenues, the average annual increase rate according to the NABO fiscal projection is 3.8%, which is 0.1%p lower than that of the NFMP, indicating that NABO’s projected revenues over a five-year period (2019-2023) will be 29.2 trillion won lower than what is expected under the NFMP. In terms of total expenditures, the average annual increase rate according to the NABO fiscal projection is 6.0%, which is 0.2%p lower than that of the NFMP, indicating that NABO’s projected expenditures over the five-year period (2019-2023) will be 11.4 trillion won lower than what is expected under the NFMP. In terms of the operating fiscal balance, NABO fiscal estimates of the deficit volume are expected to be 13.8 trillion won higher than that of the NFMP over a five-year period (2019-2023). In terms of government debt, the NABO fiscal projection against GDP is estimated at 48.2% (1,074.3 trillion won) in 2023, 1.8%p higher than the 46.4% (1,061.4 trillion won) estimated by the NFMP for 2023.