S. Korea to remove cap on duty-free shopping, targets 3.1% GDP growth in 2022

[Photo by Lee Chung-woo]

South Korea will target 3.1 percent growth despite the setbacks of ongoing Covid-19 threat and uncertainties from a presidential election in March by propping up domestic demand through extended special sale tax break and lifting in duty-free purchase cap on nationals while supporting exporters with enhanced financing, according to the government’s economic policy outline for 2022.

The outgoing government under President Moon Jae-in whose term ends in May will aim to “completely normalize the economy” from the Covid-19 havoc through “aggressive fiscal management and stimuli measures,” the Ministry of Finance and Economy reported to the president on Monday.

The government maintained optimistic outlook despite the worsening Covid-19 situation on signs of improvement in domestic demand and solid external demand despite renewed flare-up in virus spread and supply bottleneck.

It will steer the economy in stable growth pace of 3.1 percent after this year’s estimated 4.0 percent growth rebounding from an 0.9 percent contraction in 2020. The Bank of Korea projects a growth of 3.0 percent for next year whereas most private domestic institutions forecast a pace of under 3.0 percent.

To spur consumer spending growth of 3.8 percent from an estimated 3.5 percent gain this year, it will extend specials sale tax deductions for another year and remove $5,000 duty-free shopping cap on Korean nationals for the first time in 43 years.

VAT refund for tourists will be upped to 2.5 million won ($2,097) from 2 million won.

It expects facility investment to increase 3.0 percent next year led by chip sector and construction investment to expand 2.7 percent on year in 2022 on increased social infrastructure budgeting.

Exports will likely significantly slow from this year’s estimated gain of 25.5 percent but nevertheless are projected to add 2 percent from this year’s record-high level. Current-account surplus is expected to narrow by $11 billion from this year to $80 billion.

The government plans to arrange 261 trillion won in financing for exporters, 5 trillion won greater than this year and back vessels to facilitate shipping. R&D spending for carbon emission reduction will be tax-deducted by up to 40 percent.

Inflation is forecast to ease to 2.2 percent next year from a gain of 2.4 percent for this year in the first government estimate beyond target 2.0 percent since 2016. The government plans to freeze utility rates until the first quarter to contain inflation.

The finance ministry will work on an overhaul in the Foreign Exchange Trade Act for the first time to facilitate offshore forex trade and help the Korean stocks move to the MSCI developed index.

It will implement funding and support for New Deal projects, venture and startup promotions, carbon neutrality roadmap with 115 trillion won projects, and family plans to address low birth rates.

The economic policy outline for 2022, however, could be short-lived as the incoming administration after the March 9 presidential election would likely come up with new direction.

[ⓒ Maeil Business Newspaper & mk.co.kr, All rights reserved]