{
  "title": "IMF Executive Board Concludes 2016 Article IV Consultation with the Republic of Korea",
  "publication": "IMF News, August 12, 2016",
  "sourceUrl": "https://www.imf.org/en/news/articles/2016/08/12/19/30/pr16377-korea-imf-executive-board-concludes-2016-article-iv-consultation",
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  "summary": "After decades of impressive progress, Korea’s growth has slowed and faces structural headwinds: unfavorable demographics; heavy export reliance; pockets of corporate vulnerabilities; labor-market distortions; lagging productivity; a limited social safety net; and high household debt.",
  "publishDate": "2016-08-12",
  "sections": [
    {
      "heading": "Major findings and challenges",
      "content": "- After decades of impressive progress, Korea’s growth has slowed and faces structural headwinds: unfavorable demographics; heavy export reliance; pockets of corporate vulnerabilities; labor-market distortions; lagging productivity; a limited social safety net; and high household debt.\n- Inequality and poverty are of concern.\n- Korea has considerable fiscal space to manage these challenges.\n- Growth has been sluggish since 2012 due to a series of shocks and a steady decline in growth potential.\n- Authorities responded with fiscal and monetary support and measures to contain rapid household debt increase.\n- Activity picked up in the second half of 2015 but slowed again in Q1 2016 due to expiry of a consumption tax cut (later extended), weaker fixed investment, and payback in inventory accumulation."
    },
    {
      "heading": "Growth outlook and macro dynamics",
      "content": "- Growth projections:\n  - Real GDP (percent change): 2012: 2.3; 2013: 2.9; 2014: 3.3; 2015: 2.6; 2016: 2.7; 2017: 3.0.\n- The anticipated pickup in activity is based on growing private consumption, a stronger housing market, and the impact of fiscal and monetary easing.\n- Export prospects are expected to remain difficult, weighing on fixed investment.\n- Credit is expected to continue to grow (partly reflecting interest rate cuts) but at a slower pace consistent with tightening prudential measures and envisaged moderation in construction investment after 2017."
    },
    {
      "heading": "Executive Board assessment and policy recommendations",
      "content": "- Directors commended Korea’s achievements but noted structural constraints: rapid population aging, heavy export reliance, rising corporate vulnerabilities, labor market segmentation, and lagging productivity.\n- Structural reforms were strongly supported to raise growth potential.\n- Fiscal policy:\n  - Given low public debt, fiscal support can be used to incentivize structural reforms, cushion adverse effects, and support growth.\n  - A carefully targeted expansion of social expenditure over the medium term could help reduce poverty and inequality, bolster consumption, and raise productivity.\n  - Directors acknowledged the authorities’ aim to safeguard long-run fiscal sustainability in view of demographic change and possible reunification.\n  - Views differed: some Directors saw room for higher social spending without offsetting revenue or cuts; others felt additional spending should be budget neutral or met by revenue enhancement.\n  - Directors welcomed consideration of a fiscal rule to anchor fiscal sustainability over the medium term.\n- Corporate sector:\n  - Directors supported authorities’ efforts on corporate restructuring and urged timely implementation for distressed firms while ensuring an adequate social safety net for affected workers.\n  - They welcomed the plan to recapitalize the policy banks, while stressing sufficient budgetary resources and the need to unwind the Bank of Korea bridge financing.\n- Labor market and structural reforms:\n  - Labor market reforms are critical to address segmentation and boost female labor force participation.\n  - Promote competition in the service sector and among small and medium enterprises to raise productivity.\n  - Support the authorities’ strategy to develop a “creative economy” by fostering innovation.\n- Monetary and macroprudential policy:\n  - Fiscal and monetary policies should remain supportive given weak conjuncture and downside risks; Directors welcomed announced fiscal stimulus and recent policy rate cut.\n  - A few Directors warned about effectiveness and potential implications of further stimulus.\n  - Recommended tightening and harmonizing macroprudential standards across banks and nonbanks to contain household debt risks.\n- External sector:\n  - Some Directors called for a more explicit focus on reducing the current account surplus.\n  - Directors stressed continuing to allow the exchange rate to move flexibly to facilitate rebalancing and adjustment to shocks; recommended limiting intervention to address disorderly markets and encouraged disclosure of such interventions.\n  - Directors supported easing capital flow management measures."
    },
    {
      "heading": "Key quantitative indicators (selected)",
      "content": "- Real GDP (percent change): 2012: 2.3; 2013: 2.9; 2014: 3.3; 2015: 2.6; 2016 (proj): 2.7; 2017 (proj): 3.0.\n- Total domestic demand (percent change): 2012: 1.2; 2013: 0.7; 2014: 2.5; 2015: 3.7; 2016 (proj): 2.4.\n- Final domestic demand (percent change): 2014: 1.4; 2015: 3.4.\n- Consumption (percent change): 2014: 2.2; 2015: 2.0; 2016 (proj): 3.5.\n- Gross fixed investment (percent change): 2012: -0.5; 2013: 3.8; 2014: 3.6; 2015: 3.2.\n- Stock building 1/ (contribution to GDP growth): 2012: -0.1; 2013: -1.7; 2014: 0.0; 2015: 0.8.\n- Net foreign balance 1/ (contribution to GDP growth): 2012: 1.6; 2013: 1.5; 2014: 0.4; 2015: -1.2; 2016 (proj): -0.3.\n- Nominal GDP (in trillions of won): 2012: 1,377; 2013: 1,429; 2014: 1,486; 2015: 1,559; 2016 (proj): 1,622; 2017 (proj): 1,697.\n- Gross national saving (percent of GDP): 2012: 35.2; 2013: 35.3; 2014: 36.2; 2015: 36.3; 2016 (proj): 35.6.\n- Gross domestic investment (percent of GDP): 2012: 31.0; 2013: 29.1; 2014: 29.3; 2015: 28.5; 2016 (proj): 28.8; 2017 (proj): 29.2.\n- Current account balance (percent of GDP): 2012: 4.2; 2013: 6.2; 2014: 6.0; 2015: 7.7; 2016 (proj): 7.5; 2017 (proj): 6.5.\n- CPI inflation (end of period): 2012: 1.1; 2013: 1.3.\n- CPI inflation (average): 2012: 1.9; 2013: 1.7 (core inflation (average) entry shows 1.7).\n- GDP deflator (percent change): 2012: 1.0; 2013: 0.9; 2014: 0.6.\n- Real effective exchange rate: 2012: 9.2; 2013: 6.6.\n- Trade (percent change) — Export volume: 2012: 5.6; 2013: 4.8; 2014: 4.4.\n- Trade (percent change) — Import volume: 2012: 0.5; 2013: 4.3; 2014: 4.7; 2015: 3.1; 2016 (proj): 2.8.\n- Terms of trade: 2012: 12.0; 2013: -1.8.\n- Consolidated central government (in percent of GDP) — Revenue: 2012: 22.1; 2013: 21.5; 2014: 21.2; 2015: 21.3; 2016 (proj): 22.0; 2017 (proj): 21.7.\n- Consolidated central government (in percent of GDP) — Expenditure: 2012: 20.6; 2013: 20.9; 2014: 20.8; 2015: 21.0; 2016 (proj): 21.1.\n- Consolidated central government (in percent of GDP) — Net lending (+) / borrowing (-): 2012: 0.3.\n- Overall balance Excluding Social Security Funds (in percent of GDP): 2012: -1.3; 2013: -1.5; 2014: -2.0; 2015: -2.4; 2016 (proj): -2.3.\n- General government debt (percent of GDP): 2012: 32.2; 2013: 34.3; 2014: 35.9; 2015: 37.9; 2016 (proj): 38.7; 2017 (proj): 39.0.\n- Money and credit (end of period) — Credit growth: 2012: 7.4; 2013: 7.6; 2014: 6.7.\n- Money and credit (end of period) — M3 growth: 2012: 7.8; 2013: 8.7; 2014: 9.0.\n- Balance of payments (in billions of U.S. dollars) — Exports, f.o.b.: 2012: 603.5; 2013: 618.2; 2014: 613.0; 2015: 548.8; 2016 (proj): 521.5; 2017 (proj): 541.9.\n- Balance of payments (in billions of U.S. dollars) — Imports, f.o.b.: 2012: 554.1; 2013: 535.4; 2014: 524.1; 2015: 428.5; 2016 (proj): 398.1; 2017 (proj): 423.7.\n- Oil imports (in billions of U.S. dollars): 2012: 108.3; 2013: 99.3; 2014: 94.9; 2015: 55.1; 2016 (proj): 47.7; 2017 (proj): 57.4.\n- Gross international reserves (end of period, in billions of U.S. dollars) 2/: 2012: 323.2; 2013: 341.7; 2014: 358.8; 2015: 363.2; 2016 (proj): 350.9; 2017 (proj): 334.8.\n- In percent of short-term debt (residual maturity): 2012: 181.0; 2013: 203.5; 2014: 208.8; 2015: 228.4; 2016 (proj): 230.8; 2017 (proj): 230.5.\n- External debt (in billions of U.S. dollars) — Total external debt (end of period): 2012: 408.9; 2013: 423.5; 2014: 424.4; 2015: 395.4; 2016 (proj): 384.2; 2017 (proj): 374.8.\n- External debt — Short-term (end of period): 2012: 128.0; 2013: 111.8; 2014: 116.4; 2015: 107.1; 2016 (proj): 101.1.\n- Total external debt (in percent of GDP): 2012: 33.4; 2013: 32.4; 2014: 30.1; 2015: 28.7; 2016 (proj): 27.9; 2017 (proj): 26.1.\n- Debt service ratio 3/ (percent): 2012: 7.0; 2013: 7.2; 2014: 7.9; 2015: 8.9; 2016 (proj): 8.6.\n\nIMF Communications Department — Press Release No. 16/377, August 12, 2016. Executive Board meeting concluded July 29, 2016.\n\n---\n\n\n References\n\n- Republic of Korea and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.imf.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2016/08/12/19/30/pr16377-korea-imf-executive-board-concludes-2016-article-iv-consultation"
    }
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    "Published: August 12, 2016",
    "After decades of impressive progress, Korea’s growth has slowed and faces structural headwinds: unfavorable demographics; heavy export reliance; pockets of corporate vulnerabilities; labor-market distortions; lagging productivity; a limited social safety net; and high household debt.",
    "Inequality and poverty are of concern.",
    "Korea has considerable fiscal space to manage these challenges.",
    "Growth has been sluggish since 2012 due to a series of shocks and a steady decline in growth potential.",
    "Authorities responded with fiscal and monetary support and measures to contain rapid household debt increase.",
    "Activity picked up in the second half of 2015 but slowed again in Q1 2016 due to expiry of a consumption tax cut (later extended), weaker fixed investment, and payback in inventory accumulation.",
    "Growth projections:",
    "The anticipated pickup in activity is based on growing private consumption, a stronger housing market, and the impact of fiscal and monetary easing.",
    "Export prospects are expected to remain difficult, weighing on fixed investment.",
    "Credit is expected to continue to grow (partly reflecting interest rate cuts) but at a slower pace consistent with tightening prudential measures and envisaged moderation in construction investment after 2017.",
    "Directors commended Korea’s achievements but noted structural constraints: rapid population aging, heavy export reliance, rising corporate vulnerabilities, labor market segmentation, and lagging productivity.",
    "Structural reforms were strongly supported to raise growth potential.",
    "Fiscal policy:",
    "Corporate sector:",
    "Labor market and structural reforms:",
    "Monetary and macroprudential policy:",
    "External sector:",
    "Real GDP (percent change): 2012: 2.3; 2013: 2.9; 2014: 3.3; 2015: 2.6; 2016 (proj): 2.7; 2017 (proj): 3.0.",
    "Total domestic demand (percent change): 2012: 1.2; 2013: 0.7; 2014: 2.5; 2015: 3.7; 2016 (proj): 2.4.",
    "Final domestic demand (percent change): 2014: 1.4; 2015: 3.4.",
    "Consumption (percent change): 2014: 2.2; 2015: 2.0; 2016 (proj): 3.5.",
    "Gross fixed investment (percent change): 2012: -0.5; 2013: 3.8; 2014: 3.6; 2015: 3.2.",
    "Stock building 1/ (contribution to GDP growth): 2012: -0.1; 2013: -1.7; 2014: 0.0; 2015: 0.8.",
    "Net foreign balance 1/ (contribution to GDP growth): 2012: 1.6; 2013: 1.5; 2014: 0.4; 2015: -1.2; 2016 (proj): -0.3.",
    "Nominal GDP (in trillions of won): 2012: 1,377; 2013: 1,429; 2014: 1,486; 2015: 1,559; 2016 (proj): 1,622; 2017 (proj): 1,697.",
    "Gross national saving (percent of GDP): 2012: 35.2; 2013: 35.3; 2014: 36.2; 2015: 36.3; 2016 (proj): 35.6.",
    "Gross domestic investment (percent of GDP): 2012: 31.0; 2013: 29.1; 2014: 29.3; 2015: 28.5; 2016 (proj): 28.8; 2017 (proj): 29.2.",
    "Current account balance (percent of GDP): 2012: 4.2; 2013: 6.2; 2014: 6.0; 2015: 7.7; 2016 (proj): 7.5; 2017 (proj): 6.5.",
    "CPI inflation (end of period): 2012: 1.1; 2013: 1.3.",
    "CPI inflation (average): 2012: 1.9; 2013: 1.7 (core inflation (average) entry shows 1.7).",
    "GDP deflator (percent change): 2012: 1.0; 2013: 0.9; 2014: 0.6.",
    "Real effective exchange rate: 2012: 9.2; 2013: 6.6.",
    "Trade (percent change) — Export volume: 2012: 5.6; 2013: 4.8; 2014: 4.4.",
    "Trade (percent change) — Import volume: 2012: 0.5; 2013: 4.3; 2014: 4.7; 2015: 3.1; 2016 (proj): 2.8.",
    "Terms of trade: 2012: 12.0; 2013: -1.8.",
    "Consolidated central government (in percent of GDP) — Revenue: 2012: 22.1; 2013: 21.5; 2014: 21.2; 2015: 21.3; 2016 (proj): 22.0; 2017 (proj): 21.7.",
    "Consolidated central government (in percent of GDP) — Expenditure: 2012: 20.6; 2013: 20.9; 2014: 20.8; 2015: 21.0; 2016 (proj): 21.1.",
    "Consolidated central government (in percent of GDP) — Net lending (+) / borrowing (-): 2012: 0.3.",
    "Overall balance Excluding Social Security Funds (in percent of GDP): 2012: -1.3; 2013: -1.5; 2014: -2.0; 2015: -2.4; 2016 (proj): -2.3.",
    "General government debt (percent of GDP): 2012: 32.2; 2013: 34.3; 2014: 35.9; 2015: 37.9; 2016 (proj): 38.7; 2017 (proj): 39.0.",
    "Money and credit (end of period) — Credit growth: 2012: 7.4; 2013: 7.6; 2014: 6.7.",
    "Money and credit (end of period) — M3 growth: 2012: 7.8; 2013: 8.7; 2014: 9.0.",
    "Balance of payments (in billions of U.S. dollars) — Exports, f.o.b.: 2012: 603.5; 2013: 618.2; 2014: 613.0; 2015: 548.8; 2016 (proj): 521.5; 2017 (proj): 541.9.",
    "Balance of payments (in billions of U.S. dollars) — Imports, f.o.b.: 2012: 554.1; 2013: 535.4; 2014: 524.1; 2015: 428.5; 2016 (proj): 398.1; 2017 (proj): 423.7.",
    "Oil imports (in billions of U.S. dollars): 2012: 108.3; 2013: 99.3; 2014: 94.9; 2015: 55.1; 2016 (proj): 47.7; 2017 (proj): 57.4.",
    "Gross international reserves (end of period, in billions of U.S. dollars) 2/: 2012: 323.2; 2013: 341.7; 2014: 358.8; 2015: 363.2; 2016 (proj): 350.9; 2017 (proj): 334.8.",
    "In percent of short-term debt (residual maturity): 2012: 181.0; 2013: 203.5; 2014: 208.8; 2015: 228.4; 2016 (proj): 230.8; 2017 (proj): 230.5.",
    "External debt (in billions of U.S. dollars) — Total external debt (end of period): 2012: 408.9; 2013: 423.5; 2014: 424.4; 2015: 395.4; 2016 (proj): 384.2; 2017 (proj): 374.8.",
    "External debt — Short-term (end of period): 2012: 128.0; 2013: 111.8; 2014: 116.4; 2015: 107.1; 2016 (proj): 101.1.",
    "Total external debt (in percent of GDP): 2012: 33.4; 2013: 32.4; 2014: 30.1; 2015: 28.7; 2016 (proj): 27.9; 2017 (proj): 26.1.",
    "Debt service ratio 3/ (percent): 2012: 7.0; 2013: 7.2; 2014: 7.9; 2015: 8.9; 2016 (proj): 8.6.",
    "[Republic of Korea and the IMF](http://www.imf.org/external/country/KOR/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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