S. Korea shifting to fiscal tightening, to scale back budget from next year

[Photo by Lee Seung-hwan]

South Korea is shifting away from expansionary fiscal policy in sync with monetary tightening to normalize public finance wrecked by record spending under the last government to fight Covid-19 and enhance welfare.

“The government will reduce unnecessary spending and make structural reforms in the public sector,” President Yoon Suk-yeol said in his first Liberation Day address Monday. “At the same time, we will provide more intensive support for low-income families and the socially disadvantaged through savings from streamlining.”

Yoon – who had emphasized fiscal health since the presidential election campaign – has announced various belt-tightening policies in public sector over the 100 days since inauguration. Public institutions would be first to be revamped.

Fourteen public institutions whose financial soundness and performance has deteriorated including Korea Electric Power Corporation and Korea Lang & Housing Corporation have been designated as financial risk entities, subject to sweeping self-restructuring means including sale of non-core assets.

The government plans to convene an Ownership Steering Committee meeting this week and lay out reforms in public institution management system and management assessment improvement.

The government plans to sell over 16 trillion won ($12.2 billion) worth of idle state-owned land and buildings over the next five years to improve overall fiscal health.

“Amid growing uncertainty in the global economy, the government must attain fiscal soundness in order to maintain the credibility of the Korean economy,” Yoon said.

His government would contain the rise in annual budget at around 5 percent, compared with the 8.7 percent average increase under the five years of Moon Jae-in presidency.

The government for the first time since 2010 will propose budgetary scheme for 2023 scaled back from this year’s 679.5 trillion won that includes two extra budgets, according to Economy and Finance Minister Choo Kyung-ho told reporters Saturday.

Cut in salaries for vice ministerial or higher rank government officials would be one of the measures to cut back spending, Choo said.

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