Drop in Korea’s global ranking reveals issues plaguing government efficiency

The paper says the pace of decline may not be dramatic, but policymakers need to scrutinise what has led to the drop in the ranking.


A night view of South Korean capital Seoul (123rf)

June 26, 2023

SEOUL – The annual report on world competitiveness ranking issued by the International Institute for Management Development, or IMD, tends to draw keen attention from media and policymakers here. While some critics question the report’s accuracy, it nonetheless serves as a valuable yardstick for assessing a country’s global competitiveness.

The IMD has been putting out the report since 1989, reflecting four factors that determine a nation‘s competitiveness: economic achievements, government efficiency, corporate efficiency and infrastructure.

This year, South Korea’s ranking dropped a notch from a year earlier, placing it at 28th among 64 countries in the survey. Out of 14 countries in the Asia-Pacific region, Korea ranked No. 7, also down one spot from last year.

The pace of decline may not be dramatic, but policymakers need to scrutinize what has led to the drop in the ranking, as the country has either stagnated or slumped for three years in a row since 2020, when it ranked 23rd in global competitiveness.

A closer look at the survey results by sector suggests that the country’s economy is relatively faring well, while the government struggles with efficiency issues. In economic performance, Korea’s ranking rose from 22nd last year to 14th this year — an all-time best.

The robust results are thanks to improvements in the economic performance’s subcategories: employment (sixth to fourth), prices (49th to 41st), and domestic economy (12th to 11th).

Strangely enough, the Finance Ministry attributed the upbeat score of economic achievement to the government’s efforts to tackle global challenges. However, it was poor government efficiency that dragged down the country’s overall ranking.

According to the IMD report, Korea’s government efficiency ranked 38th this year, slipping two notches from last year. In the subcategories, the rank fell from 32nd to 40th in public finance, from third to 45th in foreign exchange stability, from 45th to 52nd in political instability and from 57th to 60th in bureaucracy.

In public finance, Korea witnessed troubles in key indicators such as fiscal balance relative to gross domestic product and the growth rate of government debt. This seems to be the result of a widening fiscal deficit and snowballing sovereign debt.

It is regrettable that experts have long warned about potential risks related to the government’s reckless spending, which undermines fiscal soundness — one of critical factors affecting a country’s competitiveness.

According to the fiscal trend report released by the government on Thursday, the national debt, or the debt of the central government, stood at 1,072.7 trillion won ($830 billion) at the end of April, up 19 trillion won from the previous month. Compared to the level seen at the end of 2022, the national debt jumped by 39 trillion won.

The consolidated fiscal balance — the government’s total revenue minus total expenditures — was a deficit of 29 trillion won in April. If items like national pensions are subtracted from the consolidated figures, the actual administrative fiscal deficit is estimated to have reached 45 trillion won, an alarming increase of 7 trillion won compared to the previous year.

Some critics attribute the problems with fiscal soundness to the previous Moon Jae-in administration, accusing it of allegedly overspending taxpayer money on welfare projects.

But it seems that the underlying problem lies throughout the political circle more broadly, as the rival parties tend to propose populist spending plans, especially in the run-up to elections. With general elections scheduled for April next year, major parties and lawmakers are likely to call for larger state budgets to carry out their favored projects in an attempt to win more votes.

Given the country’s sluggish global competitiveness, policymakers are required to help improve its fiscal soundness by adopting more belt-tightening measures and strengthening criteria for new spending projects. In particular, lawmakers are urged to work on the legislation for fiscal rules which has made virtually no progress in the National Assembly.

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