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S. Korea Tightens Belt amid Global Fiscal Concerns
Source: koreaherald.com
Source Date: Friday, May 14, 2010
Country: Korea (Republic of)
Created: May 17, 2010

The Korean government aims to cut discretionary spending in next year’s budget by 10 percent, tightening its belt amid global fiscal worries. The Finance Ministry has notified government ministries about the plan to streamline fiscal spending, officials said yesterday. Along with the 10 percent reduction in discretionary spending, the government will introduce new “Paygo” rules, aimed at compelling new spending to not add to the fiscal deficit. Under the rules, a new spending proposal must either be “budget neutral,” or have a financing plan sorted out, such as utilizing savings derived from existing funds. Each ministry is also required to take a zero-base approach to budget planning, officials said.

The belt-tightening plan comes as Korea aims to achieve a fiscal balance before the end of 2014. Last year, Korea logged a fiscal deficit worth 4.1 percent of its gross domestic product. The Finance Minister expects this year’s deficit will decrease to 2.7 percent or lower. Government debt stood at 33.8 percent of GDP in 2009. Calls have been growing for the government to prudently manage state finances after spending aggressively to curb a sharp economic downturn in the aftermath of the 2008 global financial crisis.

Experts say the government will find it increasingly difficult to secure fiscal soundness going forward, as welfare needs grow with the aging population. “Appropriate budget spending was required to support the economy, but I think it is time that we paid more attention to the soundness of the overall fiscal conditions,” President Lee said last week. “It is time to find a way to achieve both fiscal stability and high growth.” The National Assembly’s Budget Office said that the nation’s mandatory budget spending may overtake discretionary expenditures in a few years on the back of rising fixed outlays to support an aging population and interest payments for government debt. “Given the expected fiscal spending increase for the aging population, the government should be looking for new tax revenue sources and finding a balance between tax income and spending,” it said in a report released last week.
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