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Effect of South Korea Fiscal Spending to Weaken in 2017

Effect of South Korea Fiscal Spending to Weaken in 2017Effect of South Korea Fiscal Spending to Weaken in 2017

The effect of South Korean government fiscal spending on boosting the economy is feared to lose further ground in 2017 than this year due to the nation’s greater economic opening and other factors, a report said Monday.

The National Assembly Budget Office said in the report that the impact of fiscal spending on the country’s gross domestic product and job creation has been on the decline since 2014 and is expected to lose more momentum in the coming year, Yonhap reported.

Based on the government budgets from 2014-17, the report analyzes how an increase in unit fiscal spending—including spending on goods and services, capital expenditures and current transfers—affects the country’s economic growth and the number of jobholders.

The report attributed the steady fall in the impact of fiscal spending to a range of reasons, including the country’s greater opening to the outside world and the so-called crowding-out effect of government debt financing.

The report comes amid growing calls for the government to take expansionary fiscal policies to help prop up the slowing economy, including the drafting of a supplementary budget.

In a policy briefing to lawmakers, Bank of Korea Gov. Lee Ju-yeol said Thursday that fiscal spending should play a greater role in bolstering the economy as the effect of monetary policy is limited amid negative interest rates.

A day later, the government and the ruling Saenuri Party agreed to consider mapping out a supplementary budget by February to support the faltering economy.

However, some analysts point out that given its diminishing effect, excessive dependence on fiscal spending to bolster the economy could sap the efficacy of government policies.

Hit by sluggish exports and stubbornly weak domestic demand, South Korea’s economy is widely expected to grow in the 2% range next year.

Meanwhile, South Korea’s economy could be the latest casualty of the influence-peddling scandal surrounding President Park Geun-hye, with the political spectacle holding back critical economic and industrial reforms.

People who joined the public protests may have been partly motivated by their frustration toward economic policy, acknowledged Yoo Il-ho, strategy and finance minister, at a news conference for foreign media on Dec. 11.

Yoo, who doubles as deputy prime minister, made the comment as he was confronted with a charge that economic policy during the nearly four years of Park’s rule was a failure.

 

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