SEOUL: South Korea’s left-leaning government unveiled plans on Tuesday to increase spending aggressively for the next few years, to safeguard jobs and boost welfare for an economy hit by the coronavirus, taking public finances further into the red.
The finance ministry said total spending will increase 8.5% to record 555.8 trillion won ($468.30 billion) next year, while expected revenue is seen increasing a mere 0.3% to 483 trillion won, as businesses and income earners are hurt by the pandemic.
That will take South Korea’s public finances further into deficit, raising its debt-to-GDP ratio by 6.9 percentage points to a record 46.7% in 2021.
The government projects fiscal spending to increase by 5.7% per year between 2020 and 2024, taking the debt level to 54.6% of the economy by 2023. Last year it predicted a level of 46.4% for 2023.
“Even if debt and fiscal deficit increase a bit it looks more appropriate to boost spending to make sure fiscal (policy) does its part,” finance minister Hong Nam-ki said in a briefing.
He said it would be difficult to avoid a full-year economic contraction for 2020 if the rate of coronavirus infection continues to rise.
Asia’s fourth largest economy needs fiscal policies to play a bigger role to lift activity and safeguard jobs at a time when unemployment is spiking and exports are seen falling for a sixth month in a row.
Having pledged to spend more than 277 trillion won of stimulus to fight the pandemic this year, President Moon Jae-in’s government is trying to navigate the economy through a renewed spike in coronavirus cases threatening to prolong recession into a third quarter.
To aid an economy hammered by a slump in exports and the retail sector, the government plans to boost spending on welfare and jobs by 10.7%, and allocate 11.9% more on social infrastructure projects.
The government plans to sell a record 172.9 trillion won of bonds in 2021, compared with 167 trillion won for this year, including the issuance in a third supplementary budget. Of the total next year, 89.7 trillion won will be for deficit-covering bonds.
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