Korea Expected to Post Fiscal Surplus in 2014
By Lee Hyo-sik
Staff Reporter
The nation's fiscal health will continue to deteriorate until 2013 on rising government spending and falling tax revenues, but the government will finally eliminate its budget deficit in 2014, the International Monetary Fund (IMF) projected in a report Thursday.
It also said Korea's state coffers remain in a relatively good shape, compared to those of the world's major economies, despite the massive government stimulus and tax cuts designed to bolster the sagging economy.
Analysts say achieving fiscal balance depends on the pace of the economic growth and state fiscal policies, stressing the government's spending scheme should become more efficient and cost-effective, while downsizing its functions.
The Washington-based organization forecast that Korea's budget shortfall will reach 3.2 percent of gross domestic product (GDP) this year, about $32 billion, and increase further to 4.3 percent in 2010.
In 2008, the nation posted a 12 trillion won surplus. After posting deficits for three more years from 2011 through 2013, the country will see a surplus in 2014, equivalent to 2.1 percent of its GDP.
``State coffers will likely continue to dwindle for the foreseeable future, with the massive supplementary budget, tax cuts and other stimulus steps. But riding on the rapid economic recovery and sound macroeconomic fundamentals, Korea will be able to post a budget surplus in 2014,'' the IMF said.
In line with revising upward Korea's growth projection, the IMF has turned more upbeat about the financial health of Asia's fourth largest economy on its faster-than-expected rebound. In June, the institution predicted that Korea will only be able to balance its fiscal budget in 2014.
Additionally, it said Korea's fiscal health is in much better shape than those of other advanced economies. Saudi Arabia, Russia and Canada, along with Korea, were among the few members of the group of 20 emerging and advanced countries whose fiscal balances are expected to post a surplus in 2014.
The Middle Eastern country is projected to record a surplus amounting to 13.4 percent of its GDP, thanks to its huge crude oil reserves, followed by Russia's 2 percent and Canada's 0.5 percent. On the other hand, Japan's debt to GDP ratio will reach 7.6 percent in 2014, the largest among G20 nations, followed by Britain's 6.9 percent and France's 5.2 percent.
G20 countries are expected to record an average budget deficit of 8 percent of GDP in 2009, much higher than Korea's estimated 3.2 percent,
An official at the Ministry of Strategy and Finance said the IMF issued a more optimistic note on Korea's fiscal structure and economic outlook. In 2009 and 2010, the fiscal health will continue to worsen due to greater budget spending and declining tax revenue. ``But as economic conditions return to normal, we expect to achieve the fiscal balance sooner than previously estimated.''
LG Economic Research Institute managing director Oh Moon-suk also said the IMF has taken a more optimistic stance toward Korea's fiscal structure after pushing up its growth projections.
``Basically, the fiscal health is determined by how fast the economy grows and what type of fiscal policies the government introduces. I think the Korean government will pay more attention to improving state coffers. But it is easier said than done because Korea needs to spend more taxpayers' money to strengthen the social safety net amid the rapidly aging population,'' Oh said.
He then suggested that the government spend money in a more efficient and cost-effective manner. ``The government should transform itself into a smaller entity by reducing the number of public officials and downsizing its role, while delegating more functions to the private sector to save taxpayers' money and improve the fiscal health.''