Government to frontload spending to boost economy

The government will frontload a part of its policy fund in an effort to revive the economy this year amid low consumer prices, industrial production and wage growth.

The Ministry of Strategy and Finance said Monday that it would inject 10 trillion won into the market out of 15 trillion won remaining in the 46 trillion won policy fund.

Media reports indicated that it would spend 10 trillion won by the first half of this year.

However, the Finance Ministry did not give a specific timeline and said in a press statement, that it would frontload “10 trillion won from the policy fund to boost investment in public enterprises and facilities as early as possible.”

The ministry created the fund last year to reinvigorate the economy, with measures such as real estate market stimulus. The Bank of Korea cut its key base rate twice to support the government’s fiscal stimulus.

Deputy Prime Minister and Finance Minister Choi Kyung-hwan urged the private sector on Monday to increase employee wages in line with efforts to boost domestic consumption.

“Employee wages have to increase at an appropriate level in order to revive consumption,” Choi told reporters while touring a road construction site in Seoul.

“The economy has slightly improved but its recovery remains weak and slow.”

The country’s top fiscal policymaker said the government would seek to boost infrastructure projects through a new form of public-private partnership to encourage and safeguard private investment.

The government is also expected to provide subsidies to the private sector and the regional administrations to boost job creation and increase investment in infrastructure through the policy fund.

It spent 8.3 percent of its fiscal budget in January. Should the government maintain its spending, it is likely to achieve a fiscal execution rate of over 58 percent by the end of the first half of this year.

The Korea Institute of Public Finance said that this move could increase the country’s economic growth by 0.23 percentage points.

The urgency for early fiscal spending execution comes as Korea faces mounting concerns over deflation, which will further weigh on the economy.

In February this year, Korea’s consumer price growth stood at 0.5 percent on-year, marking the slowest in 16 years, with industrial production contracting 1.7 percent in January.

Finance Minister Choi also called for efficiency in management of tax subsidies and spending by eliminating overlapping and irregular subsidy plans as the government is expected to see a decrease in corporate tax collection.

By Park Hyong-ki (hkp@heraldcorp.com)