In its "2026 Economic Report on Korea," the OECD explained that it is modifying the debt ratio forecasts for 2025 to 2027. Previously, in last month's economic outlook, the OECD had projected a government debt ratio of 45.8% for 2025, down from an earlier estimate of 49.2%. At that time, the OECD had also revised this year's debt ratio from 52.0% to 48.0% and next year's from 55.0% to 50.2%.
This latest announcement marks a reversal of its position just a month after the previous report. The OECD now forecasts the government debt ratio for 2025 at 50.4%, 51.4% for 2026, and 52.3% for 2027, an increase of 2.1 to 5.4 percentage points.
The OECD indicated that rising pension costs due to an aging population could drive the increase in the debt ratio. An OECD official stated, "If fiscal consolidation efforts are not made, the government debt ratio could rise to 200% by 2050," and recommended raising the pension eligibility age by 2035 and linking it to life expectancy.
The OECD report also included forecasts for South Korea's economic growth and policy recommendations. It noted that since joining the OECD in 1996, South Korea has seen improvements in income and quality of life, showing resilience despite challenges such as military coups and conflicts in the Middle East. Based on this, the OECD projected a growth rate of 2.6% and an inflation rate of 2.6% for this year. An OECD official remarked, "Consumer sentiment, which had been dampened by last year's coup, has recovered due to expansionary fiscal measures and consumer coupons, contributing to the recovery of consumption and small businesses."
However, the OECD emphasized the need for structural reforms to address ongoing challenges such as low birth rates, aging population, and regional economic disparities. It stressed the importance of supporting domestic demand through fiscal policy while also addressing aging issues to achieve medium-term fiscal sustainability.
To this end, the OECD suggested that broad political consensus be reached on a strengthened fiscal framework that aligns with long-term sustainability goals, including medium-term fiscal targets and expenditure restructuring, as well as pursuing pension reform. Other recommendations included a gradual transition to a single corporate tax rate and shifting property taxation to a holding tax system.
A spokesperson from the Ministry of Finance stated, "We will closely examine the policy recommendations proposed by the OECD and consider them in future policy initiatives."
* This article has been translated by AI.
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