South Korea’s fiscal deficit increased substantially in the first nine months of 2024, primarily due to higher government spending, the finance ministry reported. This development underscores ongoing fiscal challenges as the country manages expenditures across various sectors.
A fiscal deficit occurs when a government’s total expenditures exceed the revenue it generates, excluding money from borrowings. In simple terms, it’s the gap between what the government spends and what it earns in a given period, usually a year. This shortfall indicates that the government is spending more than it takes in from sources like taxes, fees, and other income.
Managed Fiscal Balance Shows Sharp Deficit Increase
The managed fiscal balance, a key metric that evaluates fiscal health under strict terms, reported a deficit of 91.5 trillion won ($65.1 billion) from January to September 2024. This figure represents an increase of 20.9 trillion won compared to the same period in the previous year, reflecting rising fiscal pressures.
Third-Largest Deficit on Record for January-September Period
The current deficit marks the third-highest on record for this period, with only the first nine months of 2020 recording a higher shortfall of 108.4 trillion won, as reported by Yonhap news agency. This increase signals a sustained strain on South Korea’s fiscal health.
Deficit Aligns with Annual Budget Forecast
The reported deficit aligns closely with the projected annual shortfall of 91.6 trillion won outlined in the government’s 2024 budget. This near-match indicates that the deficit is tracking within expected levels, though concerns remain over potential further widening.
Official Warns of Potential Widening in Deficit
Due to ongoing revenue shortfalls, a ministry official suggested that the managed fiscal deficit could continue to expand as the year progresses. The official highlighted the risk of a growing deficit as revenue generation faces challenges.
Increased Government Spending Drives Expenditure Rise
Government spending rose by 24.8 trillion won year-on-year, reaching 492.3 trillion won for the period. Increased expenditures were directed toward supporting healthcare insurance subscribers and welfare programs, highlighting a government focus on social welfare amid economic pressures.
Modest Growth in Total Revenue
Despite the rising deficit, total revenue also increased slightly, by 3.1 trillion won year-on-year, reaching 439.4 trillion won during the same period. While this revenue boost is positive, it has not been enough to offset increased spending fully.
Continuous Growth in South Korea’s Money Supply
South Korea’s money supply expanded for the 16th consecutive month in September 2024 amid a prolonged period of monetary tightening. This trend reflects continued adjustments in the financial system as the Bank of Korea (BOK) manages liquidity levels.
M2 Money Supply Reaches Record Levels in September
The country’s M2 money supply, which includes cash, demand deposits, and other liquid financial assets, rose to 4,070.7 trillion won ($2.89 trillion) in September, marking a 0.2 percent increase from August. This measure of money supply is a key indicator of available liquidity in the economy.
M2 money is a measure of the money supply that includes cash and easily convertible near money. M2 is a broader measure than M1, which only includes physical currency and demand deposits (like checking accounts).
Year-Over-Year Money Supply Growth Slows Slightly
On a year-over-year basis, the M2 money supply increased by 5.9 percent in September, a slight decrease from the 6.1 percent growth recorded in August. This moderation suggests a marginal slowdown in the rate of money supply growth amid ongoing economic adjustments.
