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Economy

Korea lawmakers approve record $515 bn budget for 2022

To spend more on small businesses, COVID-19 measures; sovereign debt to top 1,000 trillion won mark for the first time

By Dec 03, 2021 (Gmt+09:00)

South Korea's parliament
South Korea's parliament

South Korea’s parliament on Dec. 3 approved a record $515 billion spending for 2022 to support a recovery in Asia’s fourth-largest economy and help people hit by the COVID-19. The budget was approved despite the country's ballooning fiscal deficit.

Lawmakers passed a budget of 607.7 trillion won ($515.1 billion), topping the 600 trillion won mark for the first time, according to the Ministry of Economy and Finance.

The next year’s budget is 3.3 trillion won more than the government’s initial plan submitted in August and up 8.9% from this year’s spending that excludes two emergency supplementary budgets.

With the increase, the government plans to spend 2 trillion won more to help small businesses hurt by the COVID-19. It will raise the spending for the pandemic-linked quarantine and medical infrastructure by 1.4 trillion won, including 351.6 billion won to buy oral treatment for COVID-19 -- enough for 404,000 patients.

The government’s total revenue including tax revenue and income from pension funds was forecast at 553.6 trillion won, up 4.7 trillion won from its initial proposal, according to the 2022 budget. Tax revenue was set to increase 1.4% to 343.4 trillion won with up 1.4 trillion won in value-added tax and 1.2 trillion won in corporate tax.

The total revenue, however, fell short of the budget, generating a consolidated fiscal deficit of 54.1 trillion won.

SOVEREIGN DEBT TO SURPASS 1,000 TRILLION WON MARK

The country’s sovereign debt is expected to rise 108.4 trillion won to 1,064.4 trillion won, exceeding the 1,000 trillion won mark for the first time. The debt-to-gross domestic product (GDP) ratio will rise to 50% from 47.3% this year.

The increase is smaller than the government’s initial proposal of 1,068.3 trillion won. The government plans to reduce the issuance of treasury bonds.

“We plan to cut 2.5 trillion won in sales of treasury bonds this month. Next year, we will cut 1.4 trillion won compared to the previous plan,” said a government source. The country is set to sell 76.2 trillion won in deficit bonds, down from the initially planned 77.6 trillion won.
South Korean President Moon Jae-in
South Korean President Moon Jae-in

The sovereign debt is slated to increase by 404.2 trillion won during the five-year term of President Moon Jae-in, far higher than a total growth during the previous two administrations.

The debt rose 170.4 trillion won under the administration of former President Park Geun-hye from 2013 to 2017. It grew 180.8 trillion won during the government of former President Lee Myung-bak from 2008 to 2013.

“South Korea’s national debt ratio growth is as fast as one of the countries that are in fiscal crisis,” said Sung Taeyoon, a professor of Yonsei University’s School of Economics in Seoul. “It needs to cut debt more through spending adjustments.”

Write to Hyeong-Ju Oh, Jin-gyu Kang and Eu-Jin Jeong at ohj@hankyung.com

Jongwoo Cheon edited this article.
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