By Kim Rahn
Public-sector spending jumped 46 percent in five years mainly due to construction projects led by the Lee Myung-bak administration, according to the Bank of Korea (BOK), Thursday.
Economists criticized the government and public companies for using the budgets for the projects ineffectively.
The BOK data showed central and municipal governments and financial and non-financial public companies spent 671.9 trillion won ($635.4 billion) in 2012, up 46 percent from 460.1 trillion won in 2007.
The spending is equivalent to 48.8 percent of nominal GDP, up from 2007's 44.1 percent.
As public sector's earnings in 2012 were 666 trillion won, smaller than the spending, the sector posted 5.9 trillion won deficit, compare with a 17.3 trillion won surplus five years before.
"Non-financial public companies' deficit was especially large as they conducted large-scale projects under the Lee administration including the construction of residential towns, the relocation of public organizations to the provinces, and the four-river refurbishment," BOK Director Cho Yong-seung said.
Analyst Lim Hee-jung at the Hyundai Research Institute said, "Government investment in such big projects was not wise. The government and public firms failed to manage their money smartly and effectively."
Lim said the government and public companies should reduce ineffective investment.
"If not, financial problems may occur from a vulnerable sector, such as municipal governments. The government and public firms should use their budgets systematically to prevent a problem in one sector from spreading to others," he said.
The BOK data backed Lim's claim.
Non-financial public firms' spending expanded largely between 2008 and 2010 when they carried out large, state-driven construction projects on behalf of the government ― from 125.8 trillion won in 2007 to 155 trillion won in 2008, 171.2 trillion won in 2009 and 183.6 trillion won in 2010. The growth slowed afterward.
In 2009, the deficit of the non-financial public companies, 48.3 trillion won, accounted for 83 percent of the total public sector deficit of 58 trillion won.
The central and municipal governments posted surpluses in general between 2007 and 2012, having a deficit of 15.2 trillion won only once in 2009. This was the opposite for major advanced countries that experienced deficits throughout the period.
"Government deficit in many advanced countries comes from pensions and other spending related to welfare. But Korea adopted the national pension system relatively late, and the National Pension Fund has a surplus for now as the number of recipients is small," Cho said.
"However, Korea may experience deficits soon because the country is aging rapidly," he said.
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Economists criticized the government and public companies for using the budgets for the projects ineffectively.
The BOK data showed central and municipal governments and financial and non-financial public companies spent 671.9 trillion won ($635.4 billion) in 2012, up 46 percent from 460.1 trillion won in 2007.
The spending is equivalent to 48.8 percent of nominal GDP, up from 2007's 44.1 percent.
As public sector's earnings in 2012 were 666 trillion won, smaller than the spending, the sector posted 5.9 trillion won deficit, compare with a 17.3 trillion won surplus five years before.
"Non-financial public companies' deficit was especially large as they conducted large-scale projects under the Lee administration including the construction of residential towns, the relocation of public organizations to the provinces, and the four-river refurbishment," BOK Director Cho Yong-seung said.
Analyst Lim Hee-jung at the Hyundai Research Institute said, "Government investment in such big projects was not wise. The government and public firms failed to manage their money smartly and effectively."
Lim said the government and public companies should reduce ineffective investment.
"If not, financial problems may occur from a vulnerable sector, such as municipal governments. The government and public firms should use their budgets systematically to prevent a problem in one sector from spreading to others," he said.
The BOK data backed Lim's claim.
Non-financial public firms' spending expanded largely between 2008 and 2010 when they carried out large, state-driven construction projects on behalf of the government ― from 125.8 trillion won in 2007 to 155 trillion won in 2008, 171.2 trillion won in 2009 and 183.6 trillion won in 2010. The growth slowed afterward.
In 2009, the deficit of the non-financial public companies, 48.3 trillion won, accounted for 83 percent of the total public sector deficit of 58 trillion won.
The central and municipal governments posted surpluses in general between 2007 and 2012, having a deficit of 15.2 trillion won only once in 2009. This was the opposite for major advanced countries that experienced deficits throughout the period.
"Government deficit in many advanced countries comes from pensions and other spending related to welfare. But Korea adopted the national pension system relatively late, and the National Pension Fund has a surplus for now as the number of recipients is small," Cho said.
"However, Korea may experience deficits soon because the country is aging rapidly," he said.
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