[Weekly Review] Q1 Fiscal Deficit Hits Record 55 Trillion Won... Government Spending Increases with 3rd Supplementary Budget

Korean New Deal Focuses on 'Digital, Contactless, and SOC'

By 2034, 40% of Power from Renewable Energy

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, is briefing on the contents of the '5th Emergency Economic Measures Meeting' chaired by President Moon Jae-in at the Government Seoul Office in Jongno-gu, Seoul on the 22nd. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Jang Sehee] From the beginning of the year, income has decreased, and government spending to respond to the novel coronavirus disease (COVID-19) has increased, resulting in the largest ever managed fiscal balance deficit of 55.3 trillion won in the first quarter. Due to COVID-19, the amount of money to be spent in the future is expected to increase, causing the fiscal deficit to rise more steeply. In particular, as the government includes the 'Korean New Deal' in the supplementary budget to be formulated in early June, the expenditure amount is expected to grow even larger.

◆ First Quarter Fiscal Deficit of 55 Trillion Won, Largest Ever... Tax Revenue Warning Lights = The managed fiscal balance, which shows the actual state of the country's finances, recorded the largest deficit ever in the first quarter of this year. Due to the economic downturn caused by the COVID-19 crisis, tax revenue has further decreased, and as spending on various support measures increases, the scale of the fiscal deficit is expected to grow even more. According to the 'May Monthly Fiscal Trend' announced by the Ministry of Economy and Finance on the 7th, the integrated fiscal balance deficit, which is the government's total revenue minus total expenditure for the first quarter (January to March) of this year, was 45.3 trillion won, the largest since 2004. The managed fiscal balance also recorded a deficit of 55.3 trillion won. This is the largest scale ever, more than twice the deficit of 25.2 trillion won in the first quarter of last year.

The problem is that the fiscal deficit is expected to increase further in the future. As the Korean New Deal project is included in the third supplementary budget to be formulated in early June, the scale of expenditure is expected to grow even larger. In fact, based on this year's original budget, the managed fiscal balance deficit was expected to be around 3.5% of the Gross Domestic Product (GDP), but it increased to 4.1% and 4.5% in the first and second supplementary budgets, respectively.

◆ Korean New Deal Focused on 'Digital, Contactless, and SOC' = The government plans to focus the Korean New Deal project on contactless services and digital transformation. On the 7th, Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, held the second Emergency Economic Central Countermeasures Headquarters meeting and finalized the 'Korean New Deal Promotion Direction.'

The government will work on establishing a foundation to expand contactless services in education and health/medical fields. It plans to create a digital education environment by building an AI (Artificial Intelligence)-based remote education support platform that provides customized educational content. In the health and medical sector, the government plans to expand contactless services starting from public medical services. Plans include mobile healthcare at public health centers and video-linked home health care services.

◆ Current Account Surplus in March but Deficit Expected in April = The current account maintained a surplus trend in March but is expected to turn into a deficit in April due to the impact of COVID-19. According to the preliminary balance of payments statistics released by the Bank of Korea on the 7th, the current account recorded a surplus of 6.23 billion dollars in March. The goods balance surplus, which is the difference between exports and imports of goods, shrank compared to last year. However, the deficit in the services balance decreased, and the primary income balance turned into a surplus.

The goods balance surplus was 7 billion dollars, down by 1.34 billion dollars compared to a year ago. This was due to exports decreasing more than imports. The services balance recorded a deficit of 1.46 billion dollars. However, the current account is expected to turn into a deficit in April. This is because the deficit in the primary income balance widened due to dividend payments to foreigners. Park Yang-su, Director of the Economic Statistics Bureau at the Bank of Korea, said, "Globally, there is no clear sign of the COVID-19 spread calming down, which could worsen the trade balance."

◆ By 2034, 40% of Electricity Supply from Renewable Energy = The 9th Basic Plan for Electricity Supply and Demand Working Group announced the '9th Basic Plan for Electricity Supply and Demand' on the 8th. According to the draft released that day, by 2034, nuclear power plants will be reduced to 17 units, while renewable energy will be significantly expanded to 40%. The Basic Plan for Electricity Supply and Demand is an administrative plan established every two years under the Electricity Business Act to ensure the stability of electricity supply and demand.

The maximum electricity demand in 2034 was estimated at 104.2 GW, and the average annual expected increase rate in electricity demand from 2020 to 2034 was 1.0%, slightly lower than the 1.3% in the 8th plan. This forecast was based on economic growth rate projections from the Ministry of Economy and Finance, Korea Development Institute (KDI), and the Bank of Korea, as well as mid- to long-term temperature forecast statistics from the Korea Meteorological Administration. Meanwhile, the final version of the 9th Basic Plan for Electricity Supply and Demand will be determined according to the consultation period required for the newly introduced Strategic Environmental Impact Assessment.

This content was produced with the assistance of AI translation services.