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IMF urges Korea to reduce debt and focus on R&D, gives Lee positive reviews so far

Published: 24 Nov. 2025, 23:00

Rahul Anand, International Monetary Fund (IMF) mission chief for Korea, second from left, speaks during a press briefing at the government complex in Jongno District, central Seoul on Sept. 24. [NEWS1]

The International Monetary Fund (IMF) projected that Korea’s government debt-to-GDP ratio will exceed 50 percent next year and urged the country to reassess its fiscal policy over the medium-to-long term, even as it recommended short-term fiscal expansion to support growth.

The IMF released its annual Article IV consultation report on Monday. The IMF's assessments follow yearly visits to member countries to evaluate economic conditions and offer policy advice. This year’s consultation was conducted from Sept. 11 to 24.

The IMF gave a positive short-term assessment of President Lee Jae Myung’s expansionary fiscal stance. It said Korea has ample policy space and that the current economic environment supports accommodative monetary and fiscal measures. It added that further easing could be considered if downside risks emerge.

However, it advised that fiscal spending be concentrated on research and development (R&D) and innovation, which are areas with high growth potential.

From a long-term perspective, the IMF called for a shift in fiscal stance once the potential growth rate recovers, citing inflationary pressures. It forecast Korea’s managed fiscal deficit at 4.5 percent of GDP this year and 4.3 percent next year, up from 4.1 percent last year.

The government debt-to-GDP ratio is projected to rise from 48.2 percent this year to 51.5 percent next year — the first time it would exceed 50 percent by IMF calculations. This raises concerns about fiscal sustainability and its burden on future generations.

Rahul Anand, International Monetary Fund (IMF) mission chief for Korea, speaks during a press briefing at the government complex in Jongno District, central Seoul on Sept. 24. [YONHAP]

To ensure long-term fiscal health, the IMF recommended increasing revenues and improving spending efficiency. It also emphasized strengthening a credible medium-term fiscal framework, including a “fiscal anchor.”

A fiscal anchor sets legal limits on metrics such as the national debt ratio, allowing some flexibility depending on economic conditions. Korea has proposed a rule to cap the fiscal deficit at 3 percent of GDP since 2022, but the legislation remains stalled in the National Assembly.

The IMF raised its growth forecast this year for Korea slightly, from 0.8 to 0.9 percent, and maintained the 2026 forecast at 1.8 percent. It attributed the upward revision to the current administration’s expansionary policies and improved consumer sentiment following the presidential election.

The IMF expects Korea’s economy to begin recovering in the second half of 2025, with a notable rebound in 2026.

Rahul Anand, International Monetary Fund (IMF) mission chief for Korea, third from right, and other economists from the IMF attned a press briefing at the government complex in Jongno District, central Seoul on Sept. 24. [NEWS1]

However, it warned of persistent external risks, including heightened geopolitical tensions and a potential slowdown in demand for AI, which could impact the semiconductor sector.

To mitigate this uncertainty, the IMF recommended strengthening domestic consumption and exports. It stressed the need to manage household debt and address dual structures in the labor market to broaden the income base.

Although Korea’s semiconductor and advanced manufacturing sectors remain globally competitive, the IMF cautioned that high dependence on specific countries or products poses a risk.

It forecast Korea’s consumer price inflation at 2 percent this year and 1.8 percent next year. While Korea’s current account surplus may temporarily shrink due to trade tensions with the U.S., the IMF expects a medium-term rebound driven by export recovery and increased income from overseas investments.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY AHN HYO-SEONG [[email protected]]