1 / 27

Current Fiscal Policy and Expenditure Management in Korea

Current Fiscal Policy and Expenditure Management in Korea. October 9, 2003 Hong-Sang Jung Ministry of Planning and Budget Republic of Korea. Table of Contents Ⅰ. Main Features in Fiscal Policy ……………………………… 3 Ⅱ. Role in economic development …………………………….. 17

diazmary
Télécharger la présentation

Current Fiscal Policy and Expenditure Management in Korea

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Current Fiscal Policy and Expenditure Management in Korea October 9, 2003 Hong-Sang Jung Ministry of Planning and Budget Republic of Korea

  2. Table of Contents Ⅰ. Main Features in Fiscal Policy ……………………………… 3 Ⅱ. Role in economic development …………………………….. 17 Ⅲ. Policies during the crisis period ……………………………. 22 Ⅳ . Future Challenges ………………………………………….. 26

  3. Ⅰ. Main Features in Fiscal Policy • Fiscal Balance (consolidated central government) Percent of GDP Consolidated central government balance

  4.  Since Early 80s, fiscal balance has been managed relatively well except the crisis period (’97~’99)  Note structural factors : (i) surplus in social security (about 3 percent of GDP in 2002); (ii) privatization proceeds (about 0.2~1.1 percent of GDP a year in ’98~’03)

  5. National debt + Local government debt Central government debt + Government guaranteed debt Percent of GDP Central government debt

  6.  National debt amounts to about 22 percent of GDP in 2002. However, this figure increases to about 40 percent if the government guaranteed debt are included  The government guaranteed debt increased sharply just after the economic crisis. The guaranteed debt were used for financial sector restructuring.

  7. Two turning points (1) : early 80s • · Fiscal tightening started. Prudent fiscal management (the principle of expenditure within revenue) continued until the economic crisis. • · Helped stabilizing the economy. • · However, resulted in a shortage of infrastructure and high transportation costs in late 80s. As a response, infrastructure investment increased in late 80s and early 90s, resulting in slight deficits in that period.

  8. Two turning points (2): late 90s (economic crisis) • · Fiscal loosening and deficits in ’97~’99 to help the recovery from the economic crisis. Fiscal surplus again after this period. • · Expenditure increase first and revenue increase followed. Expenditures to support recovery  economic recovery  revenue increase/ fiscal surplus.

  9. Size of total expenditure and net lending Total expenditure and net lending Percent of GDP Total revenue Consolidated central government balance

  10. Relatively small size of government (Korea 22.8 percent of GDP in 2002; OECD average 37.3 in 2001). · Size of total expenditure followed fluctuations in that of total revenue. As a result, fiscal balance has remained almost balanced.

  11. Composition of revenue

  12.  Heavily dependent on consumption and property taxes rather than income taxes.  Privatization proceeds amounted to 0.2 ~ 1.1 percent of GDP a year in ’98 ~ ’03.

  13. Composition of expenditure (by function)

  14. By function :  Relatively low : social protection, health Relatively high : economic affairs, defense.

  15. Composition of expenditure (by economic classification)

  16. By economic classification :  Relatively low : income transfer, government consumption, interest payment. Relatively high : Public investment.

  17. Ⅱ. Role in economic development • Role in economic development : fiscal vs. financial Total expenditure and net lending Percent of GDP M3

  18. Financial sector played more active role than the fiscal sector in economic development.  During the economic crisis, fiscal sector played an active role because the financial sector could not perform its role properly.

  19. Main contributions by the fiscal sector • Helped maintain macroeconomic stabilization. Fiscal conservatism and resulting low public debt No excess supply of liquidity by the fiscal sector • · Supplied infrastructure for economic development (road and harbor construction, vocational education, etc.). and initiated structural changes (government loans to new technology SMEs, R&D institutions, etc.).

  20. Features for effectiveness • Fiscal policies were implicitly linked to economic plans. Plans had a medium-term (5 years) perspective (until 96s). • · Concentrated on high priority areas (esp. economic affairs). Given limited resources, concentration was essential. Strong political leadership and good inter-ministrial cooperation supported this.

  21. Improvement in fiscal management system • Improve rationality : Review committee system for budget compilation. • · Flexible apparatus to support important projects(infrastructure construction, housing) : public enterprises, special accounts for earmarked revenues, and extra-budgetary funds. Efforts to improve their efficiency (e.g., appraising system for public enterprises and funds, and auditing). • · Efforts to save cost : Preliminary feasibility studies, tightening of project ceiling.

  22. Ⅲ. Policies during the crisis period (’97~’99) • Fiscal policies to help the recovery • · Supporting the restructuring costs of the financial sector. • · Extending social safety net. • · Boosting economic growth.

  23. Restructuring the financial sector • · KAMCO and KDIC issued bonds (total 97 trillion won) to clean non-performing loans and to add capital to a required level. Banks and other financial institutions could remain credible and functioning because of this restructuring. • · Rule of thumb for cost sharing: a half by the financial institutions and the other half by the government. • · The government is repaying bonds since 2003 (2 trillion a year in coming 25 years). • · In addition, the government took the burden of interest costs.

  24. Extennding social safety net • · Unemployment became an important issue. • ’96’97 ’98 ’99’00 ’01 ‘02 • Unemployment rate 2.0 2.6 6.8 7.5 6.8 6.2 5.5 • · The government increased public works, vocational training, income transfer to low-income earners, unemployment insurance, and loans to unemployed.

  25. Supporting economic growth • · Increased credit guarantees and government loans to,especially SMEs (small and medium enterprises). • · Increased infrastructure constructions as a stimulus to recovery.

  26. Ⅳ. Future challenges • Changes in policy environment • · Spending pressure will accelerate : health and welfare costs due to an aging population; costs due to maturing social safety net; uncertain cost of cooperation with North Korea. • · Diversified demand and political pressure. Complicated policy demands.

  27. The government plans to • · Clearly implement medium-term plans. • · Improve budget formulation procedure with a top-down approach. • · Strengthen performance management. • · Improve transparency by simplifying budget structure.

More Related