The Government’s Fiscal Projections Are Becoming Reality Far Faster Than Expected
The government’s projection from 10 years ago that the national debt-to-GDP ratio would reach 52% only by 2040 is now expected to occur next year. This means the target has been achieved 14 years earlier than initially anticipated. Furthermore, the national debt-to-GDP ratio, which was projected to reach 57.1% by 2050, is now expected to exceed 58% by 2029. The timeline that was thought to take 35 years has shrunk to just 14 years.
As the error margin in the government’s “Long-Term Fiscal Outlook,” published every five years, continues to grow, concerns are emerging that it could significantly disrupt the establishment of medium- to long-term fiscal plans. The Long-Term Fiscal Outlook diagnoses future fiscal risks under the assumption that current systems and economic conditions remain unchanged. It is published every five years and projects the national debt-to-GDP ratio up to 40 years into the future.
10-Year-Old Projection Becomes Reality in Less Than Half the Time
According to an analysis by People Power Party Rep. Yoon Young-seok of data received from the Ministry of Economy and Finance on the 27th, when the Long-Term Fiscal Outlook was first introduced in 2015 (during the Park Geun-hye administration), it projected the national debt-to-GDP ratio for 2040 at 52.2%. Here, national debt refers to the combined debt of the central and local governments. However, according to the Ministry of Economy and Finance’s “2025-2029 National Fiscal Management Plan” released last month, the projected national debt-to-GDP ratio for next year is 51.6%. A figure that was expected to take 25 years to reach has been achieved in just 11 years.
The 2050 national debt-to-GDP ratio projection of 57.1% made in 2015 has also been brought forward by more than 20 years. According to the National Fiscal Management Plan released last month, South Korea’s national debt-to-GDP ratio is expected to reach 58% in 2029. The period that was thought to take 35 years has been reduced to 14 years.
The government had projected 10 years ago that the national debt-to-GDP ratio would exceed 60% only by 2060 (62.4%), but at the current rate, it is likely to surpass 60% around 2030. This means the timing for exceeding 60% has been brought forward by about 30 years.
However, GDP is recalculated every five years, leading to slight changes in the calculation criteria. Although the 2015 and 2025 projections estimate future GDP based on different criteria, experts generally assess that the gap is minimal and that comparing the national debt-to-GDP ratios between the two periods is feasible.
Fiscal Outlook Shaken by Low Birthrate and Low Growth
The worsening low birthrate and low growth issues are cited as key factors behind the large errors in the Long-Term Fiscal Outlook over the past decade. As the birthrate and growth rate have deteriorated noticeably each year, the future size of GDP has shrunk, inevitably driving up the national debt-to-GDP ratio.
According to the Ministry of Data and Statistics’ future population projections, the total population in 2040 was estimated at 51.09 million in the 2015 forecast. However, this year’s projection puts it at 50.06 million, barely maintaining the 50 million threshold. This represents a decrease of over 1 million. The total fertility rate projection is even more severe. In 2015, the fertility rate for 2040 was projected at 1.42, but this year’s forecast has it at 1.05—a drop of 0.37.
The issue of low birthrate and aging is expected to worsen at an even steeper rate in the future. According to the Ministry of Economy and Finance, the proportion of the population aged 65 and over, which is 20.3% in 2025, is projected to surge to 46.6% by 2065. Meanwhile, the working-age population (15-64 years) is expected to decrease from 35.91 million to 18.64 million, halving in size.
Economic growth rate projections have also significantly deteriorated. According to the Korea Development Institute’s (KDI) long-term economic growth outlook, 10 years ago, the average annual growth rate for 2031-2040 was projected at 1.9%. However, this year’s forecast puts it at 1.3% for the same period. The average annual growth rate for 2041-2050 also fell from 1.4% a decade ago to 0.7% this year—half of the previous projection.
Amid stagnant growth and a shrinking population, the rapid increase in fiscal spending due to populist cash-handout policies aimed at gaining public favor, welfare expenditures, and investments in various social infrastructures such as transportation and convenience facilities has also contributed to worsening the national debt-to-GDP ratio outlook. Over the past decade (2015-2025), the government’s total expenditure, including supplementary budgets, surged by approximately 83%, from 387 trillion Korean won to 705 trillion Korean won.
Concerns That “Long-Term Fiscal Outlook Fails to Fulfill Its Role”
The Long-Term Fiscal Outlook is inherently less accurate compared to the annually released “National Fiscal Management Plan.” This is because the National Fiscal Management Plan is an actual execution plan updated every year, directly reflecting budget requests from each ministry and revenue and expenditure estimates.
However, experts point out that such large forecast errors could pose significant problems in establishing medium- to long-term economic policies and future crisis response plans. They argue that as the weakening of South Korea’s economic resilience progresses much faster than expected, the Long-Term Fiscal Outlook itself is losing its meaning as a policy guideline.
Sejong University Professor Kim Dae-jong stated, “While some degree of error is inevitable in long-term fiscal outlooks due to their extended timeframe, the fact that a 10-year-old projection is materializing in less than half the time is a serious issue.” He added, “This signals that the South Korean economy is falling into structural crises at a much faster rate than anticipated.” He further warned, “If this trend continues, medium- to long-term fiscal plans and national debt management strategies based on long-term fiscal outlooks could become meaningless,” emphasizing, “It is urgent to prepare fundamental countermeasures against low birthrates and low growth.”
Rep. Yoon Young-seok remarked, “Long-Term Fiscal Outlooks projecting over 60 years cannot accurately predict the future. Their purpose is to identify the extent of future fiscal risks and devise current countermeasures.” He added, “The current period, where the second baby boom generation (a population group of 9.54 million born between 1964 and 1974) is vigorously engaged in economic activities and supporting the national finances, is the golden time to stabilize the long-term national fiscal situation.”
