Fiscal policy focus moving from budgetary spending to off-budget activity in South Korea

The government released a report detailing its 2016 policy direction, which was generally in line with the view that the government will rely more on off-budget activity to support the economy, with fiscal stimulus via official fiscal spending to step back eventually in 2016. 

The government projects real GDP growth to rebound to 3.1%y/y in 2016, up from 2.7% in 2015. In the absence of quarterly projections, the government sounded fully aware of the risk that domestic demand may weaken early next year, with temporary tax cuts eliminated at the end of 4Q15 and official fiscal spending planned to stay almost flat in 2016. 

Indeed, the cyclically adjusted fiscal balance is expected tighten modestly in 2016. Against this backdrop, the government pledged to support growth via off-budget spending such as state-owned enterprise investment. Including the government plan for offbudget activity and front-loading of on-budget expenditures, public sector spending is expected to stay mildly growth-supportive in the first half of next year