Transcript Korea`s Experience in Linking Planning and Budgeting

Korea’s Experience on
Linking Planning and Budgeting
During the Development Era and Recent Reform
May 23, 2005
Byung-Seo Yoo
Ministry of Planning and Budget
Republic of Korea
Table of Contents
Ⅰ. Korea’s Economic Miracle
Ⅱ. Linking Planning and Budgeting
Ⅲ. Public Expenditure in Development Era
Ⅳ. Future Challenges
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Ⅰ. Korea’s Economic Miracle
 GDP/capita
• US$79(1960)
 Average Nominal
Growth Rate
US$14,162(2004)
 1960-2004
: 20%
16000
14000
• 1960’s : 26%
12000
10000
• 1970’s : 31%
8000
6000
financial
crisis
4000
• 1980’s : 17%
2000
• 1990’s : 13%
04
02
00
98
96
94
92
90
88
86
84
82
80
78
76
74
72
70
68
66
64
62
60
0
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 Korea’s Economy Scale(1960-2004)
•
•
•
•
GDP : US$ 2 billion to US$ 680 billion
GDP per capita : US$79 to US$14,162
The World 11th largest Economy
29th OECD member since 1996
 Top 5 Exports (industrial Structure)
•
•
•
•
1960’s : Iron, Tungsten, Silk, Anthracite, Cuttlefish
1970’s : Textiles, Plywood, Wigs, Iron, Electronics
1980’-90’s : Electronics, Iron & Steel, Footwear, Ships, Textiles
2000’s : Semiconductor, Motor Cars, Computers, Ships,
Petroleum Products
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 Economic Development Process
• 1960s : Launch of Economic Development Plans
& Industrialization
• 1970s : Promotion of Heavy and Chemical Industries
• 1980s : Strengthening of Economic Stabilization Efforts
• 1990s-Now : Transition into Knowledge Based Economy
(1997 : Financial Crisis)
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Ⅱ. Linking Planning and Budgeting for this
Miracle
 Linking System
• Economic Planning Board (EPB), 1961-1994:
- planning and budgeting functions reside under one roof
• Strong political support and leadership
- monthly President’s visit to EPB
- minister of EPB holds position of Deputy Prime Minister
(influence over line ministries for coordination)
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 Planning and Budgeting
• Fiscal policies were implicitly linked to economic plans.
- Plans had a medium-term (5 years) perspective.
- Five-Year Economic Development Plan launched in 1962.
(until 1996)
• In retrospect, MTEF exercise without calling it MTEF
(Medium-Term Expenditure Framework)
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• Given limited resources, concentration was essential.
• Budgeting concentrated on economic affairs
according to med-term economic development plans.
- Supplied infrastructure for economic development
- Initiated structural changes by investing R&D
- developed human resources
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Ⅲ. Public Expenditure in Development Era
35
Economic Affair
30
25
20
15
10
Social Welfare & Quality of Life
5
0
70
75
80
Social Welfare
85
90
Economic services
95
Defence
00
05
Education
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 Composition of expenditure (by function) 2004
• Expenditure in economic development and education
is very high compared with other countries.
100%
Economic affairs
80%
Social protection
60%
Health
Education
40%
Public order and
safety
General public
services
Defence
20%
0%
Korea
OECD average
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 SOC investment
• SOC stock has increased by 4-15 times compared to the past.
1962(A)
1980(B)
2003(C)
Ratio
27,169
46,951
97,252
3.6(C/A)
- Airport (flight #)
140
1,006
2,149
15.4(C/A)
- harbor (million ton)
-
82
487
5.9(C/B)
- subway (km)
-
41
412
10.0(C/B)
- Road (km)
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 Aggressive Investment in R&D and Education
• R&D : 2.9% of GDP, 4.8% of central government budget
< R&D investment ratio to GDP (IMD,2003, %) >
Korea
USA
Japan
France
UK
2.92
2.80
2.98
2.20
1.85
• Education has been a stepping stone for Korea’s miracle
< Education Expenditure ratio to the Integrated Public Finance (%) >
USA(01)
UK(99) Japan(recent) Korea(03)
1.9
3.7
6.0
15.1
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Ⅳ. Future challenges
 Changes in policy environment
• Spending pressure will accelerate
- health and welfare costs due to an aging population.
- costs due to maturing social safety net.
- uncertain cost of cooperation with North Korea.
• Diversified demand and political pressure.
Complicated policy demands.
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 Korea’s recent reforms (since 2004)
• Clearly implement medium-term plans.
• Improve budget formulation procedure with a top-down approach.
• Strengthen performance management.
• Improve transparency by simplifying budget structure.
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Thank you
“A budget is much more than
a collection of numbers.
A budget is a reflection of
a nation’s priorities, its needs, and its promise.”
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