South Korea grapples with fiscal deficit

September 13, 2013 Leave a comment

Updated: Friday September 13, 2013 MYT 12:30:21 PM

South Korea grapples with fiscal deficit

SEOUL: South Korea says it faces a 2013 revenue shortfall of up to 8 trillion won (US$7.37bil), a challenge for President Park Geun-hye’s administration as it prepares to submit its first full-year budget to parliament next month. The previous South Korean government was unable to have a balanced budget in its last years, and a wider-than-expected deficit this year may signal that Park, who became president early this year, could struggle to achieve a goal of balancing the budget by the end of her five-year term.On Friday, Finance Minister Hyun Oh-seok told a parliamentary hearing that tax revenue has risen in recent months but warned that the year’s total will be less than the 210.4 trillion won projected in April, when the government proposed a 5.3 trillion won fiscal stimulus package.

The minister did not say if the government will revise its projection for a fiscal deficit this year of 1.8% of gross domestic product.

Finance ministry officials have said the government should be able to cope with this year’s budget gap without resorting to selling more debt.

Overall government debt levels remain relatively low, and analysts say that South Korea’s fiscal health remains sound despite recent expansionary spending.

Given weak economic growth, the government cannot count on any surplus revenue to carry over into next year, while Park’s agenda calls for boosted social welfare spending in coming years.

The government is projecting 4% growth for next year, but analysts caution that the forecast may be overly optimistic. Weaker-than-expected growth could trigger additional revenue shortages, putting pressure on the Park administration’s ability top fund its key initiatives without borrowing more.

“Expenditures won’t shrink for next year’s budget, while the tax income the government can use will decrease as no money will likely carry over from this year’s budget,” said SK Securities analyst Yum Sang-hoon. “So the government will likely need to drum up more taxes somehow or sell more deficit bonds” – Reuters

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