South Korea’s Government to Spend 2.5% More in 2010
South Korea’s government plans to increase spending 2.5 percent next year as it seeks to generate more jobs and boost support for lower-income earners.
Total expenditure will rise to 291.8 trillion won ($245.5 billion), the Ministry of Strategy and Finance said in its 2010 budget proposal statement today in Gwacheon. National debt will be 36.9 percent of gross domestic product next year, compared with an estimated 35.6 percent this year, it said.
“We will maintain the active role of fiscal policy in order to support the economic recovery,” Finance Minister Yoon Jeung Hyun told reporters. “More time and effort are needed to make ordinary people feel the economic recovery,” he said, adding the government is aiming to create more jobs.
The budget increase signals the government is concerned the recovery may lose momentum after extra spending and interest- rate cuts helped the economy expand at the fastest pace in almost six years in the second quarter. Group of 20 leaders meeting in Pittsburgh last week acknowledged that the global revival remains dependent on government stimulus.
“The increase in the budget suggests that the government wants to maintain the momentum of the economic recovery,” said Kim Jae Eun, an economist at Hyundai Securities Co. in Seoul. “The government has made it clear it will retain its accommodative fiscal policy through next year.”
The nation’s Kospi stock index has risen 49 percent this year as investors bet the economy is past its worst. Earlier government reports showed sales at major department stores increased for a sixth straight month in August. The Asian Development Bank, Citigroup Inc. and Barclays Capital Inc. last week raised their economic growth forecasts for South Korea.
Stimulus, Rates
Even so, South Korea should maintain fiscal stimulus and low borrowing costs until the economy’s rebound is stronger, Yoon said earlier this month. Gross domestic product expanded 2.6 percent in the second quarter and the government forecasts the economy will shrink 1.5 percent for the full year before expanding 4 percent in 2010.
Government spending on research and development will rise 10.5 percent next year, while spending on health and social welfare will increase 8.6 percent, the ministry said today. Defense spending will gain 3.8 percent.
The ministry said it aims to lower the national debt-to-GDP ratio to 35.9 percent by 2013. South Korea will probably post a fiscal deficit this year of 5 percent of GDP, and forecasts next year’s gap at 2.9 percent of GDP before heading for a balanced budget in 2013-2014, the ministry said. Economic growth will be about 5 percent in 2011-2013.
Today’s budget proposal is due to be submitted to the National Assembly by Oct. 1.
Filed under: money by Finance Boss