Short Comment
Today, Hong Nam-ki, Minister of Economy and Finance in Korea, announced the amount of the budget is KRW513.5trillion for next year, increasing by 9.3% from that of this year. He made it sure that the government wants to offset sluggish private sector by increasing the government's expenses. He also mentioned the uncertainty relevant with trade-war between G2 and the country's conflict with Japan.
The government's liability will be 39.5% of GDP next year with the expanding expenses. Korean President Moon Jae-in is strongly insisting that the country needs expanded budget at this point, by mentioning about raising the share to more than 40%. The share of 40% has been accepted as golden number for the country's stable budget.
International Monetary Fund recommended the expansion for Korean government's expenses. Its ground is that the number is much lower than the country's peers. Korea cannot be compared with the US or Japan which have key currencies, but the peers like Italy, Spain, or Canada which have similar economic sizes with Korea's also have the numbers more than 100%.
However, there are several refutations about it. The European countries' situation could not provide the appropriate ground for the opinion. Many economists are suggesting that the European countries' economy has been worsening because they cannot use the advantage of plunging value of the currency. Even though individual countries' situation became worse, a degree of the fall in value of EUR was limited because of German and French economy. Italy and Spain had recorded negative or zero economic growth rate for a long time.
The other peers of Korea which do not use key currencies and are not part of Europe could be Australia and Mexico. Australian and Mexican numbers for the government's liability are 43% and 38% respectively. For someone suggesting more stable fiscal policy, their numbers are being strong grounds.
Whether it has appropriate ground or not, Korean government will push its 'The Biggest Government' policy. Bank of Korea does not have intention to disobey it. The countries' academics are suggesting that the lowest point of BoK's policy rate should be 75bp, but the institution can make a bunch of grounds to refute it. The institution will support the government's policy, and 0% policy rate will be realized soon.
Today, Hong Nam-ki, Minister of Economy and Finance in Korea, announced the amount of the budget is KRW513.5trillion for next year, increasing by 9.3% from that of this year. He made it sure that the government wants to offset sluggish private sector by increasing the government's expenses. He also mentioned the uncertainty relevant with trade-war between G2 and the country's conflict with Japan.
The government's liability will be 39.5% of GDP next year with the expanding expenses. Korean President Moon Jae-in is strongly insisting that the country needs expanded budget at this point, by mentioning about raising the share to more than 40%. The share of 40% has been accepted as golden number for the country's stable budget.
International Monetary Fund recommended the expansion for Korean government's expenses. Its ground is that the number is much lower than the country's peers. Korea cannot be compared with the US or Japan which have key currencies, but the peers like Italy, Spain, or Canada which have similar economic sizes with Korea's also have the numbers more than 100%.
However, there are several refutations about it. The European countries' situation could not provide the appropriate ground for the opinion. Many economists are suggesting that the European countries' economy has been worsening because they cannot use the advantage of plunging value of the currency. Even though individual countries' situation became worse, a degree of the fall in value of EUR was limited because of German and French economy. Italy and Spain had recorded negative or zero economic growth rate for a long time.
The other peers of Korea which do not use key currencies and are not part of Europe could be Australia and Mexico. Australian and Mexican numbers for the government's liability are 43% and 38% respectively. For someone suggesting more stable fiscal policy, their numbers are being strong grounds.
Whether it has appropriate ground or not, Korean government will push its 'The Biggest Government' policy. Bank of Korea does not have intention to disobey it. The countries' academics are suggesting that the lowest point of BoK's policy rate should be 75bp, but the institution can make a bunch of grounds to refute it. The institution will support the government's policy, and 0% policy rate will be realized soon.