[Exclusive] Government Says No, but Gyeonggi Province Claims 'De Facto Default'... Crisis or Exaggeration?

While Governor Choo Mi-ae of Gyeonggi Province diagnosed the province's finances as being in a "de facto default state," it has been confirmed that this does not meet the fiscal risk warning threshold under the government's local financial risk management system.

According to the Interior and Safety Ministry on the 10th, the ministry reviews fiscal risk levels of local governments nationwide every quarter, and Gyeonggi Province headquarters currently does not meet the criteria for either a "fiscally cautioned local government" or a "fiscally crisis-stricken local government" under the Local Finance Act.

In Gyeonggi Province's case, all six fiscal indicators monitored by the Interior and Safety Ministry are below the "caution level." An official from the ministry stated, "Currently, Gyeonggi Province headquarters does not fall under either the caution level or crisis level based on risk level review results." Regarding specific figures, the official said disclosure was difficult as they are "only reviewed internally," but when asked again about the six indicators, stated, "All indicators are below the caution level."

Article 65-3 of the Enforcement Decree of the Local Finance Act establishes caution and crisis standards for each of six fiscal indicators: ▲consolidated financial balance ratio ▲debt-to-budget ratio ▲debt repayment ratio ▲local tax collection ratio ▲treasury balance ratio ▲public enterprise debt ratio.

For the debt-to-budget ratio, exceeding 25% but not exceeding 40% constitutes a caution standard, while exceeding 40% constitutes a crisis standard. For the consolidated financial balance ratio, a negative value with an absolute value exceeding 25% but not exceeding 30% is caution, and exceeding 30% is a crisis standard.

The debt repayment ratio is caution if it exceeds 12% but does not exceed 17%, and crisis if exceeding 17%. The local tax collection ratio is caution if 70% or above but below 80%, and crisis if below 70%.

The treasury balance ratio is caution if 10% or above but below 20%, and crisis if below 10%, while the public enterprise debt ratio is caution if exceeding 400% but not exceeding 600%, and crisis if exceeding 600%.

However, merely meeting individual indicator standards does not automatically designate a local government as caution or crisis status. An Interior and Safety Ministry official explained, "We review fiscal risk levels every quarter, and local governments are not immediately designated just because they enter caution or crisis level; rather, they are designated after comprehensive review of future sustainability and other factors."

Gyeonggi Province was also aware that it does not fall under the designation of a fiscal crisis local government under the current Local Finance Act. An official from Gyeonggi Province's Planning and Coordination Office stated, "We are aware that we do not meet the criteria for a fiscally crisis-stricken local government under Article 65-3 of the Enforcement Decree of the Local Finance Act."

However, the province did not answer questions about what standards it used to separately determine a "fiscal emergency situation" when all six indicators reviewed by the Interior and Safety Ministry are below the caution level.

In the financial situation disclosed by Gyeonggi Province on the 5th, indicators showing fiscal strain were presented. Governor Choo announced the fiscal emergency declaration while revealing that Gyeonggi Province issued approximately 943 billion won in local bonds three times last year. This amounts to 99.6% of the 946 billion won local bond issuance limit. According to the province, this is the first local bond issuance in 20 years.

The annual budget allocation for some public welfare and essential projects was not fully reflected in this year's main budget. Governor Choo stated, "In the eighth popular election term, due to budget shortages, a considerable number of public welfare and essential projects were allocated with only nine months of budget rather than 12 months."

The scale of the supplementary budget cuts currently being pursued by Gyeonggi Province is approximately 770 billion won. Governor Choo indicated that if the current situation continues, a scenario could emerge where the province would need to issue local bonds again in two to three years to repay existing debts.

An individual identified as A, who was involved in Gyeonggi Province finances during the eighth popular election term, agreed with the fiscal strain factors Governor Choo presented but differed on the expression "de facto default." A stated, "Everything that Governor Choo Mi-ae presented as evidence is correct," adding, "It is correct that acquisition tax, the main revenue source, decreased due to real estate transaction contraction, and that we are a non-preferential grant municipality that does not receive ordinary transfer grants."

However, referencing the fiscal risk standards in the Enforcement Decree of the Local Finance Act, A said, "Gyeonggi Province does not meet high-risk criteria," and urged, "We need to look at the facts based on standards set nationally by the government—whether this is bankruptcy or crisis."

Gyeonggi Province's revenue structure is also cited as a cause of fiscal strain. Cities and counties have tax sources generated at the asset holding stage, such as property taxes, while Gyeonggi Province relies heavily on acquisition tax, which is sensitive to real estate transaction volume changes.

Meanwhile, welfare spending continues to increase. According to Governor Choo, welfare budget accounts for approximately 49% of Gyeonggi Province's total budget. The province projects this could rise to 60% if the increasing trend continues.

There is also the burden of local matching funds for central government projects. A explained, "Since Seoul and Gyeonggi Province do not receive ordinary transfer grants, when the central government increases national treasury projects and requires matching local funds, we must spend our own money," adding, "Revenue coming in does not increase while expenditures do."

Within the province, there are also opinions that current local financial risk management standards need to be clarified. A Gyeonggi Province official stated, "The government's legal alert is not sounding at all, yet local governments cannot even allocate budgets for essential projects," and said, "For administrative stability and continuity, standards must be clarified on when a local government's finances should be called a 'crisis.'"

The National Assembly is also planning to review related matters and respond. Kim Young-jin, chairman of the National Assembly Administration and Safety Committee (Democratic Party, Suwon B District), stated regarding Gyeonggi Province's fiscal situation that he would "look into response methods," and regarding the difference between current standards under the Local Finance Act and the financial situation disclosed by Gyeonggi Province, said, "I will receive information from the Interior and Safety Ministry and Gyeonggi Province and confirm once more."

Chairman Kim served as vice-chairman of the "Fair, Innovative, and Inclusive Gyeonggi Preparatory Committee," which prepared for the launch of the ninth popular election term provincial government.