Unprecedented extra budget

 

 

Time to maximize effect of economic stimulus

It is rare for a government to draw up a third supplementary budget in a year, but the Moon Jae-in administration has drawn one up. This shows how desperate the country is to tackle the COVID-19 pandemic and its devastating impact on the economy.

On Thursday, the government presented a new extra 35.3 trillion won ($29 billion) budget bill to the National Assembly. Lawmakers from the ruling and opposition parties need to cooperate in passing the bill aimed at supporting hard-hit businesses, maintaining employment and helping those most vulnerable in the coronavirus-driven crisis.

The third extra budget is the first of its kind in 48 years, implying that a desperate situation requires a desperate measure. In this sense there is no reason for the Assembly to delay its approval. Of course, it does not necessarily mean that the parliament should serve as a rubberstamp. Legislators of the rival parties must rigorously review the bill to check if the government's additional outlays are well-calculated to help the country cushion itself from the coronavirus shock.

Another important factor is how to maximize the effects of the planned fiscal injection. The government has already spent 11.7 trillion won in its first supplementary budget in March, and 12.2 trillion won in a second one in April. If the third one is in place, the total amount of the extra budgets will reach 59.2 trillion won. The Moon administration should double its efforts to allocate the outlay properly to avoid any waste of taxpayers' money, and produce successful results to stimulate the economy.

To that end, the government should have a detailed plan of action. It says it will provide nearly half of the money, 16.4 trillion won, to reeling businesses, especially small- and medium-sized ones. About 9.4 trillion won will be used to create jobs and strengthen the country's social safety net. And the remaining roughly 10 trillion won will be spent boosting economic growth. It is necessary to overhaul the budget allocation plan in order to ensure it is efficiently used to cope with the emergency situation.

Policymakers and lawmakers also need to pay heed to some worries that the extra budgets could rapidly undermine the country's fiscal soundness. The government has promised to issue state bonds and make budgetary adjustments to finance the supplementary budgets. As a result, the national debt will account for 43.5 percent of GDP this year, a steep rise from 36.2 percent in 2017. Over 40 percent may indicate that government debt has reached an unstably high level.


Of course this is not the time to worry about debt levels. It is time to push for fiscal expansion to save the crumbling economy. Nonetheless, the government needs to take mid- to long-term measures to reduce the debt to a sustainable level and restore fiscal health after the coronavirus-triggered crisis is over.