South Korea drafts an aggressive spending plan for 2022

September 01, 2021: On Tuesday, South Korea’s government unveiled an aggressive spending surge in the final annual budget of President Moon Jae-in’s five-year term that pushes out any prospect of achieving balanced budgets between a worsening fiscal deficit.

South Korea plans to spend a record 604.4 trillion won in the coming year, 8.3% more than the current year’s budget before two additional emergency spendings were drafted to offer pandemic relief to households.

The record spending plan will take South Korea’s debt-to-gross domestic product (GDP) ratio to 50.2%, the huge on record.

“Our debt will exceed the economy by 50% in the medium-term, but, as we start to turn the things around for a better fiscal standing, we expect a sizable improvement in financial balance of payments in the previous year,” a budget official at the finance ministry said.

By the year 2025, South Korea expects the ratio at 58.8%, according to the ministry.

The coronavirus pandemic has forced the left-leaning Moon Jae-in government to compromise on its financial goals, offering ambitious pandemic relief packages in six extra financial outlays since early in the previous year. The debt-to-GDP ratio had ballooned from about 40% when it took office in 2017.

The August 31 budget is seen as a balancing act amid pouring funds into badly needed social services to tackle an aging economy and reduce increasing income inequality while avoiding further strain on the country’s finances.

About a third of the total expenditure, 216.7 trillion won, allocating for welfare and jobs to cover that rise social expenses as the fastest-aging economy among the Organization for Economic Co-operation and Development (OECD) creates long-term issues for the country.

The government has also earmarked 11.9 trillion to spend on environment-related areas to work towards the country’s carbon neutrality goal by 2050. It proposed 55.2 trillion won in spending on national defense.

The finance ministry said it would issue 167.4 trillion won of bonds in 2022. The net surge in treasury bonds is projected at 94.9 trillion won.