Back To Top

‘S. Korea will struggle to meet economic growth target this year’

Fiscal chief foresees challenges in growth pace, dispels worries on plans to increase expenditure

South Korea’s top fiscal policymaker said Sunday that South Korea will struggle to achieve its economic growth target this year but has enough fiscal space to handle its plans to increase expenditure.

“Domestic investments and exports are supposed to recover in the second half of the year (in order to reach the growth rate target) but (we are) experiencing difficulties,” said Deputy Prime Minister and Finance Minister Hong Nam-ki in a live television interview with KBS.

In July, the Ministry of Economy and Finance had revised its outlook for the country’s economic growth pace this year to the 2.4-2.5 percent range, down 0.2 percentage point from the previous estimate.

“Other advanced economies have been lowering their growth forecasts and Korea is among the few countries to actually achieve a growth level of over 2 percent,” the minister said, citing data by the International Monetary Fund.

“(The Korean government) will implement all policy measures possible and strive to achieve the given (growth) target.”

Seoul’s trade-dependent economy has been weighed down lately by external risks such as the persisting US-China conflict and the escalating Korea-Japan trade friction.

Asia’s fourth-largest economy saw its exports slip 13.6 percent on-year to $44.2 billion in August, marking nine consecutive months of decline, government data showed Sunday.

Deputy Prime Minister and Finance Minister Hong Nam-ki. (Yonhap)
Deputy Prime Minister and Finance Minister Hong Nam-ki. (Yonhap)

While acknowledging the economic challenges ahead, the fiscal chief dispelled concerns on the government’s plans to increase expenditure next year.

Responding to the slowing economic pace and mounting downside risks, the government last week unveiled its state budget plan for next year, allocating 513.5 trillion won ($424.6 billion) for fiscal spending.

The budget bill, if approved by the National Assembly, will bring the country’s total expenditure to 39.8 percent of its gross domestic product next year, up from 37.2 percent this year.

“We have drafted an expansive budget realizing that it is crucial to create a virtuous circle, in which fiscal spending leads to growth and consequently boosts tax revenues,” he said.

“(But) there is no need to worry (about fiscal soundness). Deficit bonds will rise by 26 trillion won due to decreased tax revenues, but (Korea) has sufficient fiscal space to bear such expenditure next year.”

The minister also added that the government has no plans to raise taxes in the near future.

“The possibility of tax hikes was not included in the latest (five-year) fiscal operating blueprint (which was submitted to the National Assembly along with the 2020 state budget plan),” he said.

By Bae Hyun-jung (