[Editorial] OECD Points Out: 'No Plan to Strengthen Fiscal Soundness'

The Organization for Economic Cooperation and Development (OECD) criticized the Republic of Korea (ROK) for having 'no plan to strengthen fiscal soundness.' In its 'Economic Outlook' report released on the 2nd, the OECD slightly lowered its growth forecast for the ROK next year from 2.2% to 2.1% and issued a warning regarding fiscal management. Despite increasing corporate tax revenue, the OECD projected that the fiscal deficit would exceed 4% of Gross Domestic Product (GDP) in the coming years.
In this report, the OECD emphasized the need to ensure that short-term support does not lead to long-term fiscal leakage. While fiscal spending can temporarily boost household expenditures amid weak domestic demand, the sustainability of public finances must be carefully examined, especially as structural expenditures are bound to rise due to an aging population. The OECD recommended a bipartisan commitment to returning public finances to a sustainable path. This is a point that both ruling and opposition parties should take seriously.
International organizations have recently expressed growing concerns about the ROK's fiscal soundness. Previously, the International Monetary Fund (IMF), in its '2025 ROK Annual Consultation Report,' projected that the ROK economy would enter a phase of recovering potential growth next year. The IMF also stated that, after this recovery, fiscal policy should be adjusted in consideration of inflationary pressures. It stressed the need to establish a credible medium-term fiscal framework by expanding revenue and improving expenditure efficiency.
In reality, several indicators show that the ROK's fiscal situation is rapidly deteriorating. With next year's national budget set at 728 trillion won, the fiscal deficit is expected to reach 107.8 trillion won. This amounts to 3.9% of GDP, well above the 3% threshold considered the standard for sound fiscal management. The national debt-to-GDP ratio is also expected to surpass 50% for the first time next year and rise to 58% by 2029, approaching the 60% threshold for non-reserve currency countries. Rather than focusing solely on short-term stimulus effects, a long-term fiscal management strategy is needed.
The government must enhance fiscal sustainability through future expenditure restructuring. Although approximately 27 trillion won was cut from existing expenditures in the process of drafting next year's budget, this is insufficient. It is not enough to simply reduce discretionary spending, which is easier to cut; measures to control the pace of mandatory expenditures, which increase by more than 6% annually, must also be considered. There are several areas in need of adjustment, such as the Local Education Grant, which generates astronomical amounts of unused funds each year due to the declining school-age population.
Above all, the government must expedite the legislation of Fiscal Rules that set a cap on the fiscal deficit. In the past, an amendment to the National Finance Act that would have limited the fiscal deficit to 3% of GDP was proposed, but failed to pass amid an expansionary fiscal stance. Currently, the ROK is the only country among 37 advanced economies that has not adopted Fiscal Rules. While fiscal rules are becoming the global norm, the ROK continues to ignore them. If the ROK allows fiscal omnipotence to persist, it will leave future generations with an unbearable debt burden.