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Krishna Srinivasan, director of the Asia and Pacific Department at the International Monetary Fund, speaks at the Bank of Korea on Oct. 25. (courtesy of the BOK)

Krishna Srinivasan, the director of the International Monetary Fund’s (IMF) Asia and Pacific Department, predicted that the South Korean economy’s “strong fundamentals” will play a buffer role even amid a downturn in the global economy.

At the same time, he voiced “concerns” about the increase in government debt over the past few years and advised Seoul to establish stronger regulations for fiscal management going forward.

On Tuesday, Srinivasan visited the Bank of Korea (BOK) press center to speak about the current economic situation and prospects in Asia and South Korea.

At the start of his presentation, he noted that three major risk factors for Asian economies have all become a reality with the retrenchment of financial conditions, the war in Ukraine, and the unprecedented steep slowdown in China’s economic growth. He also said the South Korean economy was expected to face stagnant exports next year as a consequence.

But even in this difficult environment, the South Korean economy’s strong fundamentals will play a buffer role, he said.

Predicting that South Korea would continue to show a current account surplus amid the worsening trade conditions, he noted that its net foreign assets amounted to 40% of gross domestic product (GDP), while its foreign reserves totaled 25% of GDP, or three times its short-term liabilities.

Commenting on the worsening current account balance as energy import prices rise, he said South Korea’s resilience could be observed in the current account conditions outside of the energy sector.

But Srinivasan also voiced concerns about the rate at which South Korea’s government debt has been growing.

Stressing that debt was the only area where he felt some concerns, he observed that South Korea’s public debt has been rising at a steep rate recently and currently amounts to around 55% of GDP. He underscored the importance of establishing a stronger “anchor” for fiscal targets, such as ensuring that public debt does not exceed 60% of GDP.

“It's important that fiscal policy complements monetary policy, even while providing support to the people who need it most,” he said, stressing that fiscal policy should be “budget neutral.”

Citing the UK’s tax cut policies as an example, he emphasized the importance of establishing a medium- to long-term plan for fiscal management.

Observing that the UK has not yet announced its framework for medium- to long-term fiscal management, he predicted that this situation could cause people to feel uneasy amid predictions of changes to government expenditures and revenues.

By Lee Jae-yeon, staff reporter

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