Research Cluster

Democracy Cluster Future of Science and Technology Cluster Economic Security Cluster Population Cluster Global Korea Cluster Carbon Neutrality Cluster Balanced Regional Growth and Resilience Cluster [Expired]Pandemic Cluster

TF Project

[Expired]Foundational study for the advanced revision of the Korea-U.S. nuclear cooperation agreement [Expired]Preparation for Four Geopolitical Risks [Expired]Labor market reform tasks for restoring the dynamism of the Korean economy [Expired]Problems and Improvement Plans of Korean Education [Expired]Questions for the future of science and technology in Korea [Expired]Security and Economic Cooperation between Korea and Japan [Expired]The future of population for a sustainable society [Expired]Directions for sustainable future healthcare reform [Expired]Healthcare system improvements for the establishment of the primary care physician system [Expired]Avian influenza pandemic risk assessment and preparedness [Expired]The stagnant growth crisis: national strategy for economic prosperity

 

[Expired]Research on the outlook for key sectors of population change and response strategies [Expired]Exploring the public education system and its functions in population decline era [Expired]Policy advisory service for enhancing the future competitiveness of nuclear energy [Expired]Establishment of KEPCO's medium-to-long-term response strategy [Expired]Future agricultural and rural development strategies & response tasks for the Korea rural community [Expired]Rewriting Democracy [Expired]In the Era of Technological Competition, Korea's Future Prospects [Expired]Developing a nationally-unified response system to address frauds involving multiple victims [Expired]Changes in international politics and the rise of the global south [Expired]Research on identifying policy agendas and research issues for the national AI strategy

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Title The Current Status and Challenges of Policy-based Finance Hit 271
Publication 2025-04-15

Institute for Future Strategy Issue Brief, April Vol. 32
“The Current State and Challenges of Policy Finance”

This issue brief examines the concept and operation of policy finance—which the government has used to achieve various policy goals—diagnoses the problem of complex governance in policy funding, and presents systematic directions for improvement. Policy finance is a form of public finance designed to correct market failures and realise policy objectives, supplying funds through instruments such as direct loans, guarantees, insurance, and investment.

As of 2023, the total balance of policy finance reached KRW 1,868.4 trillion, equivalent to 83.5% of GDP. Guarantee-based policy finance accounts for the largest share, with support distributed across diverse sectors including SMEs, exports, development, and housing finance.

However, policy finance has also generated problems such as overlapping support among institutions and complex governance. The multi-layered funding structure—spanning central government, local governments, public financial institutions, and private financial institutions—has imposed limits on efficiency and performance orientation.

To address these issues, the brief proposes the following improvements:

  • Establishing a systematic management infrastructure for policy fund governance,

  • Expanding joint projects and professional linkages among implementing agencies,

  • Transitioning toward a public–private partnership model of governance by increasing private sector participation.

Keywords
Policy finance, policy fund governance, overlapping support, efficiency, public–private cooperation, governance transition



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