Strategy and Finance Minister Yoo Il-ho urged ministries Tuesday to execute 2017 budget spending early next year to provide the weak economy with a cushion against internal and external uncertainties.
However, the finance ministry is in a dilemma about economic policies for next year as it has few options available ahead of a presidential election that might come early following the impeachment of President Park Geun-hye.
“To preemptively cope with external and internal uncertainties, we should be thoroughly prepared for the execution of the budget next year. Ministries should complete preparations for major projects this year so they can be executed immediately from early next year,” Yoo said at the cabinet meeting, Tuesday.
The remarks come amid pessimistic forecasts for the economy next year, with major think tanks expecting slightly over 2 percent growth. This means the country is likely to fall below the three percent economic growth target for three consecutive years.
Yoo retained the post of finance minister after acting president, Prime Minister Hwang Kyo-ahn, and the ruling and opposition parties endorsed him in the wake of the National Assembly’s impeachment of President Park Geun-hye.
Some suggest that the government should set a supplementary budget.
“The growth rate is expected to slow down to near zero in the fourth quarter. When considering internal and external uncertainties, it is hard to fathom the direction things will go, but there is room for more aggressive policies including supplementary budgets thanks to ample tax income,” said Kim Seong-tae, an economist of Korea Development Institute (KDI).
The state-run institute lowered its economic growth outlook for the next year to 2.4 percent from its previous estimate of 2.7 percent, adding that it could fall further when political uncertainties continue.
It expects the government’s tax income to increase thanks to a rise in real estate and corporate taxes. As it would be difficult for the central bank to cut the key rate when the United States starts raising its rate, the government is more likely to implement aggressive fiscal policies.
The finance ministry is preparing economic policy directives for 2017, but it is in a quandary as there is likely to be a presidential election as early as the first half following the impeachment of President Park.
If it is upheld at the Constitutional Court, a new administration will come in following an early election. It means the economic policies included in the 2017 directives may last for only a few months.
Some experts are also skeptical about a supplementary budget to which the Park administration has been resorting to almost every year. It took diverse measures including the supplementary budget and tax benefits to prop up growth, but most of the major economic indices including consumption and production, investment and exports are far from making improvements.