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Think tank: ‘Korea needs extra budget to cushion Brexit shock’

Think tank: ‘Korea needs extra budget to cushion Brexit shock’

Posted June. 27, 2016 07:19,   

Updated June. 27, 2016 07:32

한국어

Amid growing uncertainty in domestic and overseas economies due to Brexit and corporate restructuring in Korean industries, Korea will need at least 11.5 trillion won (9.80 billion U.S. dollars) in extra budget for the economy to achieve 3 percent growth in the second half in the past two years, a local think tank has claimed.

In its report entitled "Suggestion on Direction for Creating 2016 Extra Budget Aimed at Stemming Uncertainty due to Brexit and to Secure Growth Potential" released on Sunday, the Hyundai Economic Institute said, “Korea urgently needs to set aside an extra budget to cushion shock on the domestic economy and to achieve other purposes.” The think tank made the suggestion because Korean industries are undergoing industrial restructuring amid a low-growth trend, and because the economy could be exposed to massive external shock including Brexit.

The report noted that now is the right time to create an extra budget. “If an extra budget is created at a time when expansionary monetary policy is in place with the benchmark interest rate at the lowest level ever of 1.25 percent, it could help curb economic slowdown and stabilize fluctuations of the economy,” said Hong Joon-pyo, a senior researcher at the institute.

In its report, the research institute analyzed that the extra budget should amount to somewhere between 11.5 trillion won (9.8 billion dollars) to 26.6 trillion won (22.7 billion dollars). The amount of government spending that could be implemented in the second half is 113 trillion won (96 billion dollars) amid an accelerated pace of fiscal implementation in the first half, and the amount is 11.5 trillion won shorter than the average spending (124.5 trillion won or 106.1 billion dollars) in the second half in the past two years. The report calculated this figure as the minimum amount required.

The institute further analyzed that in order to more robustly stimulate the economy, Korea should earmark up to 26.6 trillion won (22.7 billion dollars) in extra budget to match the amount of fiscal spending implemented in the first half of this year. Additionally, the think tank said Korea should set aside extra budget especially in areas that generate bigger impact in boosting the economy in the short term, while at the same time considering the need to shore up the nation’s mid- to long-term economic growth potential.

“Since the pace of national debt growth is fast, Korea should enhance the efficiency of its fiscal budget implementation,” Hong said. “Korea should prepare measures to strengthen the soundness of its state finances, including establishment of efficient revenue and expenditure plans and pay-as-you-go principle, and legislation of fiscal rules.”



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