IMF Urges Fast-Aging Korea to Reform Pensions

  • By Kim Sung-mo

    November 20, 2023 11:32

    The International Monetary Fund has warned that Korea's government debt could rise to double its GDP over the next 50 years unless the country reforms its pensions.
    The UN financial agency also called on the Korean government to push for more labor market flexibility and narrow the gender gap in employment. Without those changes, it claims, Asia's fourth-largest economy could fall into persistent low growth and high debt.
    According to the IMF's annual report released Sunday, Korea's public-sector debt will rise to 200 percent of the country's GDP by 2075 unless there are changes in the pension system because the government will be forced to cover its shortfalls.
    It calculated only the debt the central government would shoulder under the scenario. At present, the Korean public sector's debt-to-GDP ratio stands at 49.3 percent this year, but that would quadruple over the next 50 years as the country ages rapidly.
    Korea is expected to beat Japan to become the grayest society in the OECD by 2050 with an old-age dependency ratio of 80 percent.
    The IMF proposes raising the mandatory national pension contribution, which stands at just nine percent, compared to the OECD average of 18 percent. The rate is 6.3 percent in Mexico, but it is trying to raise it to 15 percent. Lithuania is the only other OECD member with a lower contribution than Korea's at 8.7 percent.
    Moreover, pension payouts in Korea are far smaller than pre-retirement salaries, which has resulted in the highest poverty rate among elderly people in the OECD. "Pension reform is needed to safeguard long-term fiscal sustainability and alleviate old-age poverty," the IMF says.
    It also recommended drastic reforms to boost Korea's potential economic growth and productivity. "Increasing labor market flexibility and closing gender gaps would help encourage female labor force participation and enhance labor productivity," it says.
    The IMF forecast Korea's economy will grow 1.4 percent this year and 2.2 percent in 2024 and remain at 2.1-2.3 percent growth until 2028.
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