Concern over Budget Deficit in Second Half of the Year

The government decided to spend 66.7 percent, or 130 trillion won, of this year’s total budget and 86.6 percent, or 14.5526 trillion won, of the budget for SOC (social overhead capital) in the first half of the year to boost the economy.

Observers say that the early expenditure is indispensable considering the economic recession, but they also worry about undesirable side effects. The early expenditure of the budget may incur a budget deficit if the government allocates a supplementary budget in the second half.

The government confirmed its Budget Allocation Plan 2005, which mostly deals with the early expenditure, at a Cabinet meeting held yesterday.

This year’s budget spending percentage (66.7 percent) for the first half rose by 3.0 percent compared to last year, recording the highest ever. The amount of the capital earmarked for the first half is 62 percent of the total budget, or 121 trillion won, an eight percent increase year-on-year.

As 14.5526 trillion won out of the total of 16.8083 trillion won SOC budget is allocated for the first half, the government will make construction orders early. The ceiling amount of loans from the Bank of Korea will also be raised to 18 trillion from last year’s eight trillion to support early capital expenditures.

The quarterly budgets are 81.9823 trillion (42.1 percent) for the first quarter; 48.271 trillion won (24.6 percent) for the second quarter; 36.8931 trillion won for the third quarter; and 28.545 trillion won (14.4 percent) for the fourth quarter.

“I agree with the need for the early budget expenditure considering the economic recession,” said Economics professor Lee Doo-won of Yonsei University. “However, the government must pay attention to the possibility of a lack of vitality in the private sector or an inefficient use of capital when it intends to boost the economy by spending the government budget.”

Jong sik Kong Chang-Won Kim kong@donga.com changkim@donga.com