"SOC Budget Tight... Reliance on Private Investment Projects to Grow," Korea Research Institute for Human Settlements Calls for Systemic Improvements

Sejong Government Complex, Korea Research Institute for Human Settlements. Korea Research Institute for Human Settlements

As advancements in new technologies such as artificial intelligence (AI) and rising welfare demands increase the national fiscal burden, a government-affiliated research institute has projected that the role of private investment projects in expanding social overhead capital (SOC) will become even more important.

On December 9, the Korea Research Institute for Human Settlements released a report titled "The Impact of Private Investment Projects on Economic Growth and the Way Forward," in which it evaluated that private investment projects have helped supplement the government's fiscal limitations and contributed to improving public convenience. The institute also predicted that reliance on the private sector will deepen in the future.

According to the report, the SOC budget was expanded for four consecutive years after the COVID-19 pandemic in 2020 to stimulate the economy, reaching 28 trillion won in 2022. However, after the inauguration of the Yoon Suk-yeol administration, the government shifted to a policy of fiscal soundness, and the SOC budget began to decrease from 2023.

The institute expects next year's SOC budget to be around 27.5 trillion won. Currently, the Lee Jae-myung administration is planning to make significant fiscal investments in supporting advanced technologies such as AI and semiconductors, revitalizing livelihoods, and creating jobs for young people, making it difficult to increase the SOC budget.

SOC Budget and Private Investment Execution Performance by Year. Korea Research Institute for Human Settlements

The institute highlighted the economic ripple effects of private investment projects as an alternative to address insufficient fiscal resources. In fact, an analysis of 23 currently operating privately funded expressways showed that they have created approximately 296,000 jobs and induced employment for 201,000 people. The production inducement effect reached 57.8 trillion won, while the value-added inducement effect was 26.6 trillion won, confirming a high contribution to economic revitalization.

The proportion of progress payments, which indicates actual construction costs, has also shifted from the public to the private sector. The share of progress payments for projects ordered by public institutions plummeted from 46.6% in 2000 to 17.3% last year. In contrast, the private sector's share surged from 51.4% to 80.6% during the same period.

The report recommended several measures to vitalize private investment projects, including: simplifying and integrating multi-stage review procedures; reducing fiscal expenditures through competitive proposals; strengthening the decision-making authority of competent government agencies; introducing reasonable adjustment systems to respond to high interest rates and rising construction costs; establishing support methods for new digital infrastructure businesses such as data centers; and improving systems to reflect the characteristics of small-scale projects such as living SOC.

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