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Effect of fiscal spending to weaken next year: report

All Headlines 09:47 December 26, 2016

SEOUL, Dec. 26 (Yonhap) -- The effect of government fiscal spending on boosting the economy is feared to lose further ground in 2017 than this year due to the nation's greater economic opening and other factors, a report said Monday.

The National Assembly Budget Office said in the report that the impact of fiscal spending on the country's gross domestic product and job creation has been on the decline since 2014 and is expected to lose more momentum in the coming year.

Based on the government budgets from 2014-17, the report analyzes how an increase in unit fiscal spending -- including spending on goods and services, capital expenditures and current transfers -- affects the country's economic growth and the number of jobholders.

The report attributed the steady fall in the impact of fiscal spending to a range of reasons, including the country's greater opening to the outside world and the so-called crowding-out effect of government debt financing.

The report comes amid growing calls for the government to take expansionary fiscal policies to help prop up the slowing economy, including the drafting of a supplementary budget.

Finance Minister Yoo Il-ho, who doubles as deputy prime minister for economic affairs, speaks during a meeting with ruling party lawmakers at the National Assembly on Dec. 23, 2016. (Yonhap)

In a policy briefing to lawmakers, Bank of Korea Gov. Lee Ju-yeol said Thursday that fiscal spending should play a greater role in bolstering the economy as the effect of monetary policy is limited amid negative interest rates.

A day later, the government and the ruling Saenuri Party agreed to consider mapping out a supplementary budget by February to support the faltering economy.

However, some analysts point out that given its diminishing effect, excessive dependence on fiscal spending to bolster the economy could sap the efficacy of government policies.

Hit by sluggish exports and stubbornly weak domestic demand, South Korea's economy is widely expected to grow in the 2 percent range next year.

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