IMF Staff Concludes 2019 Article IV Mission to Korea

March 12, 2019

  • Korea is facing short- and medium-term headwinds to growth, which requires policy action.
  • Fiscal policy needs to become more expansionary through a substantial supplementary budget, and monetary policy should be clearly accommodative.
  • The government should continue to implement structural reforms to support growth, including by reducing regulations in the services sector.

An International Monetary Fund (IMF) team led by Tarhan Feyzioglu visited Seoul during February 27–March 12 to conduct discussions for the 2019 Article IV Consultation. Mr. Feyzioglu issued the following statement at the conclusion of its visit:

“Korea’s economy has strong fundamentals. The country has a skilled labor force, strong manufacturing base, a stable financial system, low public debt, and ample foreign exchange reserves. Per-capita income recently exceeded thirty-thousand dollars. These achievements are a testament to Korea’s strong public institutions and generally prudent macroeconomic management.

“Korea is, however, facing headwinds in the short- and medium-term, with risks tilted toward the downside. Growth is moderating on the back of sluggish investment and global trade. Inflation pressures are weak, and employment creation has been tepid. Household leverage is high and continues to increase. Potential growth has declined, with its prospects hindered by unfavorable demographics and declining productivity growth. Polarization and inequality are concerns. There is also a substantial productivity gap between the manufacturing and service sectors, as well as between small and large firms.

“In the face of slowing growth and rising inequality, the authorities have moved to a more expansionary fiscal stance, and have focused on supporting job creation, strengthening social safety nets, and increasing the minimum wage. They have also taken steps to promote growth through innovation by supporting small- and medium-sized enterprises. To contain financial risks the authorities have broadened and tightened macroprudential measures.

“Staff recommend an integrated package of further macroeconomic, financial and structural policies to support growth, raise potential output, and reduce excess internal and external imbalances, while preserving financial stability.

“To support short-term growth and contain risks, the authorities should provide more fiscal stimulus through a supplementary budget, with measures that promote potential output. The Bank of Korea should have a clearly accommodative monetary policy stance, and the authorities should maintain appropriately tight macroprudential policies to preserve financial sector resilience.

“To promote long-term, inclusive growth and job creation, fiscal policy should remain expansionary in the medium-term. Flexicurity should be adopted as a basis for labor market policies by making employment protection legislation more flexible, while further enhancing social safety nets and Active Labor Market Policies. Female labor market participation should be promoted, including through improved childcare and child benefits. Rigidities in product market regulations should be addressed by further reducing barriers to entry and the protection of incumbents.”

The staff team would like to express its appreciation to the authorities and other counterparts for productive discussions and their warm hospitality during its visit.

IMF Communications Department


Phone: +1 202 623-7100Email: