South Korea Plans Record 2015 Budget as Spending Jumps

18/09/2014 08:00 AST

South Korea plans to spend a record 376 trillion won ($363 billion) next year and delay reaching a surplus by at least 2 years as the government increases support for a slowing economy.

The increase is the biggest since the 2009 budget to cushion the country from the global financial crisis. The extra 20.2 trillion won in spending will expand the deficit to 2.1 percent of gross domestic product in 2015, the Finance Ministry said in its budget proposal.

“We tried to make next year’s budget as expansionary as possible,” Vice Finance Minister Bang Moon Kyu said before today’s release. “We chose to deploy our fiscal policy aggressively and preemptively even if it meant a temporary increase in deficits.”

The extra money comes on top of 11.7 trillion in stimulus in July and an interest-rate cut last month aimed at boosting an economy that grew at the slowest pace in almost two years in the second quarter. The nation risks following Japan’s so-called “lost twenty years” unless it gets more aggressive in boosting growth, according to Finance Minister Choi Kyung Hwan.

The won weakened 0.5 percent to 1,041.45 per dollar as of 10:21 a.m. in Seoul, according to prices compiled by Bloomberg. Government bonds were little changed, with the three-year yield steady at 2.37 percent, Korea Exchange prices show.

Fiscal Deficit

The government projects the fiscal deficit will be 33.6 trillion won next year, an increase from an estimated 25.5 trillion won projected this year, and equal to 1.7 percent of GDP.

South Korea calculates its budget balance differently to the Organization for Economic Cooperation and Development, and excludes the balance of social-security related funds. The nation would have a surplus equal to 0.4 percent of GDP next year if it used the OECD method, according to the finance ministry.

Welfare spending jumps 8.5 percent from this year to a record 115.5 trillion won, the biggest portion of the budget. Education spending will rise 4.6 percent to 53 trillion won, while the defense budget increases 5.2 percent to 37.6 trillion won.

Total revenue is estimated to go up 3.6 percent to 382.7 trillion won. The ministry plans to sell a record 102.9 trillion won of bonds in 2015, compared with 97.5 trillion won this year, treasury bond market director Kim Hye Cheon said.

The ministry will present the budget draft to lawmakers by Sept. 23 for parliamentary approval. Last year’s plans to return to a fiscal balance by 2017 was delayed by at least two years, with the deficit projected to be 1 percent of GDP by 2018, according to the ministry’s mid- to long-term fiscal policy plans, released alongside the budget proposal.

Bloomberg