Central deficit of 73 trillion won and local government 10 trillion won
Social Security Fund maintains a surplus of 38 trillion won
General government balance of GDP -2.3%
Better than the OECD average of -10.8%
As the government increased fiscal spending last year to respond to the novel coronavirus infection (COVID-19), the public sector balance of payments recorded the largest deficit in 11 years. By general government standards, it is the highest since statistics were compiled. However, it was found to be at a good level compared to the size of the deficit of the Organization for Economic Cooperation and Development (OECD) member countries.
According to the ‘2020 Public Sector Account (provisional)’ announced by the Bank of Korea on the 16th, the public sector balance (total revenue minus total expenditure) last year was -55.6 trillion won. It fell by more than 65 trillion won compared to the previous year (+14.7 trillion won) and turned into a loss. It is the lowest level in 11 years since it recorded -58 trillion won in the aftermath of the global financial crisis in 2009.
Gross spending has risen sharply, pulling down the balance sheet. Total revenue from the public sector was 883.4 trillion won, a slight increase from the previous year (878.4 trillion won). On the other hand, total expenditure was 934 trillion won, an increase of 70.2 trillion won from the previous year (863.8 trillion won). The increase rate reached 8.1%.
The public sector is divided into general government (central government, local government, social security fund) and public corporations (non-financial public corporations and financial public corporations). The deficit in the public sector was largely due to the general government’s record of -44.4 trillion won last year, and the central government’s -72.8 trillion won among them. All are at their lowest levels since statistics began to be compiled in 2007. The local government’s balance of payments also posted a deficit of -9.9 trillion won, while the social security fund posted a surplus of 38.3 trillion won, maintaining a level similar to the previous year.
The BOK explained that the relocation expenditure has increased significantly as it implemented four additional budgets to respond to COVID-19. The central government spent a total of 428 trillion won last year by increasing spending on COVID-19 prevention and disaster relief payments, it was found. The general government’s total expenditure amounted to 726.2 trillion won.
However, the deficit level of the Korean government was found to be significantly better than that of major foreign countries. The ratio of general government income and expenditure to nominal GDP was -2.3% last year, the lowest level ever recorded. Considering that Korea has a surplus of social security funds while other countries are running deficits, if social security funds are excluded, this ratio drops to -4.3%. Compared to 2019, which recorded 1% and -1%, respectively, this is a significant decline. However, compared to the average of OECD member countries (-10.8%), the US (-15.8%), and Japan (-10.1%), it is a good level.
The BOK analyzed that this is because the negative range of Korea’s GDP growth rate was relatively small while most countries experienced negative growth as the COVID-19 pandemic spread worldwide last year. Looking at GDP growth by country last year, Korea recorded -1%, the US recorded -3.5%, and Japan recorded -4.8%. Korea’s nominal GDP growth also increased by 0.3% plus. This means that economic growth has supported fiscal spending to some extent.
Considering that the BOK temporarily increased fiscal spending last year to respond to COVID-19, the BOK expects the deficit to narrow this year.
Lee In-guk, head of the National Income Expenditure Team at the Bureau of Economic Statistics, said, “This year, from January to July, the combined fiscal deficit decreased by 50 trillion won compared to the same period last year. said.
In the public sector, the balance of non-financial public corporations and public financial corporations excluding the general government was -7.30 trillion won and 1.1 trillion won, respectively. In both cases, the total income decreased and the fiscal balance deteriorated compared to the previous year.
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