Korea’s Experience on Linking Planning and Budgeting May 23, 2005 Byung-Seo Yoo Ministry of Planning and Budget Republic of Korea During the Development Era and Recent Reform

2 Ⅰ. Korea’s Economic Miracle Ⅱ. Linking Planning and Budgeting Ⅲ. Public Expenditure in Development Era Ⅳ. Future Challenges Table of Contents

3 Ⅰ. Korea’s Economic Miracle  GDP/capita  Average Nominal Growth Rate  : 20% 1960’s : 26% 1970’s : 31% 1980’s : 17% 1990’s : 13% US$79(1960) US$14,162(2004) financial crisis

4  Korea’s Economy Scale( ) GDP : US$ 2 billion to US$ 680 billion GDP per capita : US$79 to US$14,162 The World 11 th 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

5 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)  Economic Development Process

6 Ⅱ. Linking Planning and Budgeting for this Miracle Economic Planning Board (EPB), : - 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)  Linking System

7 Fiscal policies were implicitly linked to economic plans. - Plans had a medium-term (5 years) perspective. - Five-Year Economic Development Plan launched in (until 1996) In retrospect, MTEF exercise without calling it MTEF (Medium-Term Expenditure Framework)  Planning and Budgeting

8 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

9 Ⅲ. Public Expenditure in Development Era Economic Affair Social Welfare & Quality of Life

10  Composition of expenditure (by function) 2004 Expenditure in economic development and education is very high compared with other countries.

11 SOC stock has increased by 4-15 times compared to the past. 1962(A) 1980(B) 2003(C) Ratio - Road (km) 27,169 46,951 97, (C/A) - Airport (flight #) 140 1,006 2, (C/A) - harbor (million ton) (C/B) - subway (km) (C/B)  SOC investment

12 R&D : 2.9% of GDP, 4.8% of central government budget Korea USA Japan France UK Education has been a stepping stone for Korea’s miracle USA(01) UK(99) Japan(recent) Korea(03)  Aggressive Investment in R&D and Education

13  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. Ⅳ. Future challenges

14  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.

15 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.”