South Korean authorities are seeking the smallest increase in government spending in almost two decades for next year, as President Yoon Suk Yeol exerts fiscal restraint following years of pandemic stimulus.
(Bloomberg) — South Korean authorities are seeking the smallest increase in government spending in almost two decades for next year, as President Yoon Suk Yeol exerts fiscal restraint following years of pandemic stimulus.
The Finance Ministry plans to submit a proposal to parliament for 656.9 trillion won ($497 billion) of outlays in 2024 in what would be a 2.8% increase from this year’s budget, it said in a statement on Tuesday. That would be the smallest rise since 2006, the year after Korea remodeled its budgetary statistics in line with international standards.
The ministry cited government debt that has exceeded 1,000 trillion won in recent years as a reason tightening is necessary. Korea carried out an unprecedented amount of fiscal stimulus to support its economy during the pandemic under President Moon Jae-in.
Sovereign credit ratings might come under pressure while the debt burden increases for future generations unless government spending is brought under control, Finance Minister Choo Kyung-ho said in a statement.
President Yoon, who took office last year, has vowed to tighten fiscal policy. In June, he said at a meeting that he would put expenditures “on a diet” even if he risked losing votes in doing so. Korea holds parliamentary elections next year.
Korea’s debt-to-gross domestic product ratio would edge up to 51% next year from 50.4% this year if the budget proposal is approved, according to the ministry. The government sees the ratio reaching around 53% by 2027.
Korea has one of the smallest debt loads in the developed world. The average debt-to-GDP ratio in East Asia will reach 106.9% in 2023, according to the International Monetary Fund, with the ratios in Japan and China reaching 258.2% and 82.4%, respectively.
Yoon’s stance marks a pivot back to the fiscal tightening stance Korea had before the pandemic as it sought to secure room to cope with economic risks ranging from aging demographics to decelerating growth.
The smallest increase in spending in almost 20 years would be consistent with the monetary tightening undertaken by the central bank as it aims to rein in price bubbles.
The Bank of Korea last week held its benchmark interest rate at the restrictive level of 3.5% for the fifth meeting in a row, reaffirming its focus on fighting inflation and curbing household debt.
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