Local Expenditure and Local Fiscal Management System in Korea HeeJae Lee & JeoungSeoup Seo Korea Research Institute for Local Administration

Contents Local Expenditure Consolidated Balance of Local Gov. By Characteristics By Function Consolidated Balance of Local Gov. Local Fiscal Management System Local Investment Appraisal System Local Bond Ceiling System Local Fiscal Analysis Local Fiscal Crisis Alert System

2015 Expenditure in Korea Local Expenditure Source: MOGAHA(2015) Summary of Local Budget for FY2015(I), p.24 retrieved from http://lofin.mogaha.go.kr/lofin_finan/InfoDetail.jsp?idx=179&finan_idx=3&type=&word=&pg=1 2015 Budget Use = Central Gov. (42.3): Local Gov. (42.8): Local Edu(14.9) Local Expenditure 2015 Total of Budget: 233.9 Trillion won 2015 Net Budget: 173.2 Trillion won

2015 Local Expenditure by Characteristics Source: MOGAHA(2015) Summary of Local Budget for FY2015(I), p.191 retrieved from http://lofin.mogaha.go.kr/lofin_finan/InfoDetail.jsp?idx=179&finan_idx=3&type=&word=&pg=1

2015 Local Expenditure by Function Source: MOGAHA(2015) Summary of Local Budget for FY2015(I), p.167-170 retrieved from http://lofin.mogaha.go.kr/lofin_finan/InfoDetail.jsp?idx=179&finan_idx=3&type=&word=&pg=1

Trends Increasing rate of Social Welfare spending => 11.3% per year Increasing rate of SOC spending => 0.3% per year Social Welfare spending increased large amount every year in Korea Now it is over 1/4 of local expenditure SOC spending has been of little importance

Trends Korea increases existing social welfare institutions and makes new social welfare institutions Social welfare spending of local government have increased 30.8 trillion won since 2008 Reforming Basic Old-age Pension(2008) to Basic Pension(2014): 7.8 trillion Establishing Home Care Allowance(2009): 1.8 trillion Establishing Pension for the Disabled(2010): 0.7 trillion Expanding Infant and Children Care Allowance(2011): 10.6 trillion National Basic Living Security: 9.9 trillion

Consolidated Balance of Local Gov. 2015 CLGB: (-) 11 trillion won Local Fiscal Management System is needed to manage these kinds of problem Consolidated Local Revenue Local Expenditure Total 156.9 168.1 Revenue 155.4 Expenditure 165.6 Loan Collected 1.5 Loan 2.4 Source: MOGAHA(2015) Summary of Local Budget for FY2015(I), p.12 retrieved from http://lofin.mogaha.go.kr/lofin_finan/InfoDetail.jsp?idx=179&finan_idx=3&type=&word=&pg=1

Local Fiscal Management System Ex ante Management Local Investment Appraisal System Local Bond Ceiling System Ex post facto Management Local Fiscal Analysis Local Fiscal Crisis Alert System

Local Investment Appraisal System Evaluating economic feasibility, validity and effectiveness of Local Investment Coming into effect in 1992 Leading planned and effective use of financial resources Reducing overlapping investment for local governments The manual of this system groups the type of objects into six categories; General investment, Government Office, Local Event, Public Information Hall, Local Museum and Gym, Act of Bearing the Obligation, etc.

Local Bond Ceiling System Making Local Bond Ceiling in the presidential decree considering fiscal status and size of existing debt If Local Bond to be issued is below the ceiling, local council can decide alone whether issuing or not the bond If Local Bond to be issued is over the ceiling, approval of the Minister of Government Administration and Home Affairs is required before local council’s decision

Local Fiscal Analysis Aiming at efficient and sound financial management Conducting comprehensive analysis of financial reports of local governments annually Analyzing indicators by classification Calculating overall aggregate indicators The results of the Fiscal Analysis are to be open to the public and stakeholders Based on the results of the Fiscal Analysis, local governments in poor fiscal condition are selected to be scrutinized on their financial condition and financial management

Local Fiscal Crisis Alert System To prevent local governments being in fiscal insolvency or moratorium Coming into effect in 2012 Monitoring seven local fiscal status which may be connected directly to fiscal crisis Deficit Consolidated Balance of Local Gov. Debt to local revenue Debt repayment ratio Current local tax revenue by quarterly Current balance in the safe by quarterly Debt to revenue ratio in local public enterprise Debt to revenue ratio in individual local public enterprise

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