Fiscal Balance in Korea
Korea - Fiscal Balance
Government announces second supplementary budget to fuel recovery
On 1 July, the government announced a supplementary budget proposal—the sixth since the pandemic started and the second this year—aimed at supporting the recovery and mitigating the adverse impact of the pandemic, largely financed by spare revenues. The bulk of the budget is dedicated to supporting local government, small businesses and lower income earners. The announcement came shortly before the imposition of tighter restrictions in the Greater Seoul area, and should provide a boost to activity in the second half of the year. However, given higher-than-expected tax revenues, the government is forecasting a smaller fiscal deficit now than when the first supplementary budget was announced.
The bill will lift this year’s expenditure by KRW 33 trillion (about USD 28.7 billion)—more than double that of the first extra budget—bringing total expenditure to KRW 605 trillion, much higher than 2020’s KRW 555 trillion. Regarding public finances, the government now sees a lower deficit of 4.4% of GDP in 2021, which compares with 4.5% in the first supplementary budget adopted on 25 March.
Over a third of the bill is directed at local governments, including subsidies for education, to boost local economies. Around 40% comprises Covid-19 relief to struggling businesses and households, especially lower income consumers, mainly to compensate for social-distancing measures. Further ad-hoc allocations include housing support for young adults, measures to stimulate consumption and extra funds for Covid-19 testing and inoculation.
Commenting on the bill and its impact on the economy and government finances, analysts at Goldman Sachs noted:
“We expect a modest growth boost from the supplementary budget. While this pandemic relief package, funded fully by excess revenues, will have a neutral impact on a consolidated budget balance for 2021 as originally budgeted for 4.5% of GDP (compared with 3.6% in the previous year), the additional spending would still boost GDP growth in Q3, by around 0.2pp in our estimation given its re-distribution effects in favor of households with high consumption propensity.”
Our panel sees the economy expanding 3.9% in 2021, which is up 0.1 percentage points from last month’s forecast, before growing 3.0% in 2022.
Korea - Fiscal Balance Data
|Fiscal Balance (% of GDP)||0.0||1.0||1.3||1.6||-0.6|
5 years of economic forecasts for more than 30 economic indicators.
|Bond Yield||1.68||1.55 %||Dec 31|
|Exchange Rate||1,156||0.21 %||Dec 31|
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