Comprehensive Evaluation of Policy Funds, including the SME FOFs

Published on Nov. 15, 2024
Published by Economic Industrial Program Evaluation Division, Budget Analysis Department

   Policy funds are a form of private support where government finances are invested to promote the flow of funds into areas critical to national policy but prone to market failure. Since the establishment of the SME Fund of Funds (FOFs) in 2005 and the Agriculture, Forestry, Fisheries, and Food FOFs in 2010, a variety of policy funds have been introduced, including the Industrial Complex Environment Improvement Fund and the Global Infrastructure Fund. Notably, policy funds managed by individual ministries, such as the Regional Activation Investment Fund and the K-Content and Media Strategy Fund, are set to increase starting in 2024, with 1.8 trillion won allocated in the 2025 budget. Given this growing scale, it is now time for a comprehensive evaluation of these policy funds.
    In this context, this report analyzes key aspects such as the types of policy funds, related laws and policies, and budget allocations. It also identifies key issues and improvement measures, focusing on factors like investment status by entity, overlap in investment targets, return rates, performance evaluation, and the recovery of government funds.
    The review finds that as the number and scale of policy funds expand, there is an increasing overlap in the investment fields and operational areas of these funds, calling for a concerted effort to resolve the redundancy problem. Furthermore, due to the complexity and long-term nature of policy fund operations, it is challenging to assess their performance accurately. To address this, it is recommended that each fund management ministry engage an external organization to conduct performance evaluations of funds, while also selecting individual programs for self-evaluation of financial outcomes.
   Additionally, re-investment and inter-account transfers of recovered funds are currently taking place without a clear legal framework. To address this issue, a solid legal basis for the reinvestment of recovered funds must be established. Moreover, it is recommended that a report be submitted to the National Assembly before the start of the regular session, detailing estimates of recovered funds for the following year, the current year's investment status, and the status of inter-account transfers.