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SUBJECT 2014-2018 Public Institution Financial Management Plan
DIVISION Public Institutions Policy Bureau > Public Institutions Reform Division
DATE 2014-09-30 TEL 044-215-5631
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PUBLIC INSTITUTION REFORM

 

 

2014-2018 PUBLIC INSTITUTION FINANCIAL MANAGEMENT PLAN

 

 

 

The government submitted the 2014-2018 public institution financial management plan to the National Assembly on September 22.

 

The 2014-2018 public institution financial management plan focuses on the following three points.

 

- Continue to improve financial soundness by properly implementing the 2013-2017 public institution debt reduction plans for each institution.

- Utilize some of the funds becoming available in public institutions due to strong won or other changes in external conditions in order to stimulate the economy and support SMEs and working classes

- Introduce a total bond issuance limit for public corporations, and require them to include their bond issuance plans in their mid- to long-term financial management plans in order to prevent them from issuing too much debt

 

2014-2018 Debt Reduction Outlook for the 40 Public Institutions that Submitted Mid- to Long-term Financial Management Plans

 

Total debt and the debt to equity ratio (hereby know as ‘debt ratio’) of the 40 public institutions are projected to be 513 trillion won and 172 percent, respectively, in 2018.  The 2018 debt outlook is larger than the 2014 debt outlook (511 trillion won), but smaller than the 2016 outlook (526 trillion won), and the debt ratio is expected to continue to fall from 220 percent in 2014 to 172 percent in 2018.

 

Compared with the 2017 debt reduction outlook projected in the 2013-2017 public institution debt reduction plan, debt is forecast to decrease by 4 trillion won and the debt ratio is forecast to improve by 5 percentage points in 2017 according to the 2014-2018 mid- to long-term plans.

 

The 4 trillion won debt reduction will be the outcome of 11.8 trillion won in debt reduction and a 7.7 trillion won debt increase, and the debt reduction and increase factors are as follows:

 

- The 11.8 trillion won debt reduction is due to external conditions including foreign exchange rates (-7.6 trillion won), overseas investment adjustment (-0.7 trillion won), changes in accounting standards and others (-3.0 trillion won), debt reduction efforts by individual public institutions (-0.5 trillion won)

 

- The 7.7 trillion won debt increase is due to the introduction of individual consumption taxes on bituminous coal and the carbon dioxide emissions trading system (+2.4 trillion won), and an increase in investment (+ 6.3 trillion won), part of which will be offset by government support and private-sector financing (-1.0 trillion won).  The 6.3 trillion won increase in investment is composed of 2.8 trillion won investment in SOC, energy and safety in 2014-2015, extra investment of 2.2 trillion won in SME and working class support during the same period, and a 1.3 trillion won investment increase in 2016-2017 to stimulate the economy. 

 

Financial Soundness in 2018


 

Public institutions that are recognized as ‘financially sound’ are expected to increase from 13 in 2012 to 17 in 2018, 11 out of which will be among the 16 institutions that have been flagged as ‘highly indebted’ for their excessively high debt levels  (excluding the Korea Deposit Insurance Cooperation and the Korea Student Aid Foundation  from the 18 ‘highly indebted’ public institutions that were originally designated).

LH, the Korea Gas Corporation and other public enterprises that are expected to fail to meet the financial soundness standards are also expected to make improvements in 2018 compared with the 2013 figures.

 

Debt Issuance

 

The 2014-2018 public institution financial management plan includes a total debt issuance limit for the 16 ‘highly indebted’ public institutions. 

 

The government will implement a total debt issuance limit on corporate bonds, structured notes, asset-backed securities and other short-term liabilities including commercial paper and asset backed short-term bonds for the 16 highly indebted public institutions. 

 

The bond repayable to total debt ratio in the 16 highly indebted public institutions will drop by 1 percentage point every year from 62 percent in 2014 to 58 percent in 2018, while bonds repayable will drop from 244 trillion won in 2014 to 237 trillion won in 2018. 

 

Future Plans

 

Public institutions will be required to continue to carry out their individual debt reduction plans by selling assets, scaling down projects and improving management efficiency.  Debt reduction performance will be evaluated, and the head of an institution that receives a poor evaluation will have to take responsibility.  The next evaluation is in 2015. 

 

The government will require more public institutions to adopt a project-based accounting system that is designed to efficiently manage debt by type.  Currently, 7 public institutions, including LH, use the accounting system, and 6 more public institutions will be required to use the accounting system. 

 

Projects worth 50 billion won or more will be subject to an in-depth feasibility study, and the government will introduce an in-depth project performance evaluation.  Three projects have been chosen for the in-depth evaluation as model cases. 

 

The limit on total bond issuance will be introduced in 2014, and will be fully implemented beginning in 2015.  Public institutions are required to take into account their bond issuance limits when planning their 2015 budgets, and the government will continue to monitor public institutions’ bonds repayable every quarter to include the outcomes in the management performance evaluation.  Public institutions whose bonds repayable exceed the limit will have to reduce bond issuance the next year to maintain bonds repayable below the limit. 

 

The government will continue to look into ways to reduce public institution debt, and at the same time will keep trying to find ways to encourage private-sector investment in public projects. 

 

Please refer to the attached PDF for the full file with accompanying tables.

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