I. Key Characteristics of and Issues in FY2014 Fiscal Management 
1. Economic Conditions in 2014
Despite the pace of recovery in advanced countries, the global economy grew by 3.4 percent in 2014 as a result of the economic slowdown in China and other emerging economies that are highly dependent on the export of natural resources. In that year, the Korean economy grew by 3.3 percent, a slightly higher rate compared to the previous year (2.9 percent), on the back of the global economic recovery picking up pace and increased investment in equipment. Domestic consumption was slow to recover, however, resulting in continued sluggish growth.

2. Annually Recurring Budget Deficit and Changes in Tax Revenue Environment  
Total revenues for FY 2014 stood at 356.4 trillion won, representing a meager year-on-year increase of 4.6 trillion won (1.3 percent) due to low tax income. This led to a shortage of 12.9 trillion won (or minus 3.5 percent) in the government budget (369.3 trillion won). In 2014, tax revenue grew at a slightly higher rate than in the previous year as a result of an increase in income tax. However, it lagged significantly behind the rate of the budget increase (7.2 percent), resulting in a large deficit of 10.9 trillion won. Thus, for three years in a row since 2012, the Korean budget balance has continued to be in the red. This deficit is mainly attributed to the longer than anticipated delay in economic recovery following the Sewol Ferry accident, and the government’s tendency to set tax revenue targets at high levels. 

3. Fiscal Management for Economic Stimulus 
Despite government efforts to stimulate the economy through early fiscal spending in the first half of 2014, the economy failed to pick up pace in the aftermath of the Sewol Ferry tragedy. Thus, the government initiated a 46 trillion-won stimulus package by revising the fund management plan (for fiscal stimulus) and expanding government financing. Though the stimulus package has likely contributed to short-term economic growth by alleviating businesses’ short-term capital constraints for more export and investment, government financing must still be improved in terms of efficiency by addressing such issues as overlapping financing by institutions that administer government financing.  

4. Deepening Structural Fiscal Deficit     
In 2014, fiscal soundness deteriorated due to increased spending and a tax deficit designed to stimulate the economy; slowing growth in tax revenues brought on by low economic growth; increased spending in welfare programs to support the aging population; and more interest payments. Particularly, the deficit-covering debt (283.8 trillion won), which must be repaid using taxpayer money, accounted for 53.5 percent of total public debt, surpassing the proportion of financial debt  (246.7 trillion won, 46.5 percent of total debt) for two years in a row from 2013. Thus, the quality of government debt has continued to deteriorate. 

5. Evaluation of Public Institutions’ Settlement of Accounts 
As of June 2015, there were 316 designated public institutions. Their aggregate assets, liabilities, and current term net income for FY 2014, as announced by the Ministry of Strategy and Finance, were 778.7 trillion won, 520.5 trillion won, and 11.3 trillion won, respectively. This rise in the liabilities of public institutions calls for stronger oversight by the relevant authorities


II. Tasks for Fiscal Management 
The government must make more realistic economic and fiscal forecasts, while addressing recurring fiscal management problems caused by the fiscal deficit. There is also a need to improve the parliamentary budget scrutiny practices to ensure that tax revenues can be adequately adjusted during the budget process. Also, in view of restoring fiscal soundness, the structure of government spending must first be reorganized so as to make discretionary spending more efficient.