Korea to maintain expansionary fiscal policy through 2020

Korea to maintain expansionary fiscal policy through 2020

South Korea plans to maintain its expansionary fiscal policy mode for the next five years to prop up the economy with efforts to cut unnecessary outlays, the finance minister said Friday.

In the 2016 national fiscal strategy meeting chaired by President Park Geun-hye, the Ministry of Strategy and Finance said it will raise the government’s spending growth rate next year, given that the country is facing daunting challenges at home and abroad.

The ministry maintained the budget spending growth at 2.7 percent in 2015 from a year earlier, slightly lower than the pace of its gross income.

“We’d thought that the rate is appropriate at the moment when we reviewed our midterm fiscal plan last year,” Vice Finance Minister Song Eon-seog said in a prior press briefing. “But we now experience worse-than-expected economic situations from outside and inside. We may need fine-tuning.”

The Seoul government has been under pressure to revise down the 2016 growth target of 3.1 percent and come up with even stronger fiscal measures to boost the economy.

The International Monetary Fund slashed its growth estimate for Asia’s fourth-largest economy to 2.7 percent and the Bank of Korea also cut its own to 2.8 percent.

Its exports, South Korea’s key economic driver, have posted negative growth for 15 months in a row through March, with their latest figures hitting 20 percent in January and 12 percent in February.

Retail sales fell 1.8 percent on-month in February despite the resumption of an excise tax cut program and facility investments retreated 6.8 percent in February.

The government used more than 40 percent of its budget for 2016 in the first three months of the year to pump-prime the economy, but economists are skeptical of the measures, calling for far more expansionary action.

But the finance ministry has kept its stance that an economic downturn is not bad enough to draw up such burdensome plans.

“As the finance minister has said, an extra budget is not on our agenda,” the vice minister said. “Our policy goal is to prop up the economy by frontloading the scheduled budget spending.”

Earlier this week, Finance Minister Yoo Il-ho said that he has no immediate plan to draw up a supplementary budget to stimulate the economy but hinted at cutting the country’s 2016 growth target from 3.1 percent.

At the same time, the finance ministry will push for fiscal reforms that can improve the country’s balance sheet in the long term.

“We will cut the discretionary spending of government ministries and agencies by 10 percent next year and spend the saved money on creating jobs and expanding growth potential,” Song said.

The government will scrap redundant state-funded projects and streamline educational regulations to improve transparency in using taxpayers’ money.

The plan also includes measures to enhance operational efficiency and profits generated by social insurance institutions, and to offer larger incentives to public firms accepting a performance-based wage system.

Source:  http://www.koreaherald.com/view.php?ud=20160422000333