Monetary policy direction press briefing

Bank of Korea Governor Shin Hyun-song attends a Monetary Policy Board meeting at the Bank of Korea in Jung-gu, Seoul, on Thursday. [Yonhap]
Bank of Korea Governor Shin Hyun-song attends a Monetary Policy Board meeting at the Bank of Korea in Jung-gu, Seoul, on Thursday. [Yonhap]

Bank of Korea Governor Shin Hyun-song said Thursday that the government's expansionary fiscal stance raises concerns, warning that "if temporary revenue sources lead to sustained spending, there may be sustainability worries."

Speaking at a monetary policy direction press briefing that morning, Shin said that while fiscal spending includes a significant amount of investment, transfer payments also make up a substantial share. "Transfer payments, when viewed through the fiscal multiplier, do not have a large impact on GDP," he said. Transfer payments refer to funds or goods the government disburses unilaterally without receiving anything in return.

Shin had earlier told the National Assembly's fiscal and economic planning committee during a national audit that next year's budget proposal would affect GDP and prices by 0.5 percent and 0.06 percent, respectively.

"There is a need to be mindful of whether fiscal spending is entirely without problems," Shin said, adding that sustainability must always be considered even when the fiscal multiplier is low. He then said that if temporary revenue sources give rise to sustained spending, "sustainability deserves especially close attention," because continued spending could create items that cannot be reversed.

He said that when designing expenditures with sustainability in mind, policymakers must consider how easily spending can be unwound if the situation is temporary. "Otherwise, there may be sustainability concerns," he said. Shin added that the fiscal authorities would be keeping a close watch, and that "ultimately, the National Assembly will need to scrutinize this rigorously."


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