This report analyzes the 2014 Budget Proposal and the 2013-2017 National Fiscal Management Plan in terms of total fiscal expenditures, responses to economic conditions through fiscal management, the feasibility of accomplishing mid-term fiscal goals, and measures for fiscal soundness management, etc.

   The National Assembly Budget Office (NABO) forecasted Korea’s economic growth for 2014 at 5.9%, which is 0.6 percentage points lower than the administration's forecast (6.5%), and estimated the current growth rate between 2013 and 2017 at 6.2%, which is 0.4 percentage points lower than the administration's estimate (6.6%). Thus, NABO forecasted that total revenues will grow from KRW 351.0 trillion in 2013 to KRW 430.4 trillion in 2017, whereas the administration estimated revenue growth from KRW 360.8 trillion in 2013 to KRW 438.3 trillion in 2017. Total expenditures for 2013-2017 were predicted to grow at an annualized average rate of
4.3%, which is higher than the administration's plan (3.5%), since required expenditures are likely to steadily increase in the course of responding to various welfare demands involving the low birth rate, aging population, and polarizing income distribution, etc. In line with this, NABO estimated that the Fiscal Balance Subject to Management will improve from a deficit of KRW 23.8 trillion (1.8% of GDP) in 2013 to KRW 12.9 trillion (0.8% of GDP) in 2017, whereas the administration forecasted that the balance will improve from KRW 23.4 trillion of deficit (1.8% of GDP) in 2013 to KRW 7.4 trillion of deficit (0.4 of GDP) in 2017, taking the figure closer to a balanced level. Therefore, NABO forecasted the government debt at KRW 480.7 trillion (36.3% of GDP) in 2013 and KRW 626.8 trillion (37.3% of GDP) in 2017, while the administration estimated it at KRW 480.3 trillion (36.2% of GDP) in 2013 and KRW 610.0 trillion (35.6%) in 2017.

  The 2014 Budget Proposal shows that the administration will maintain its fiscal policy stance of the  revised supplementary budget in 2013 – responding more actively to the economic situation to boost economic vitality – while keeping the ratio of government debt per GDP at a similar level to that of 2013 so as not to undermine fiscal soundness. In addition, an analysis of the mid-term fiscal directions of the National Fiscal Management Plan based on NABO’s economic forecasts revealed that the administration needs to secure fiscal soundness in the mid- and long-term by reinforcing a tightening fiscal stance starting in 2015 when the economic recovery will likely begin in earnest. At the same time, the administration presented the two fiscal goals of accomplishing “fiscal balance by 2017” and “maintaining the rate of total expenditure growth lower than that of total revenue growth,” but these seem to be quite challenging according to the NABO’s analysis.

  While Korea’s total government debt in 2014 is expected to represent 37.0% of GDP (NABO prediction), which is lower than the OECD average (108.8% in 2012), the administration should keep fiscal soundness by actively managing short- and long-term fiscal risks in consideration of Korea's characteristics, etc. Therefore, in order to ensure mid- and long-term fiscal soundness, the administration needs to consider improving the accuracy of economic and fiscal forecasts, legislating new fiscal rules, enhancing the effectiveness of the relevant mid-term plan including a timing adjustment of the report on the directions of the National Fiscal Management Plan, and establishing a public debt management system based on the tentatively named “Fiscal Risk Management Plan,” etc.