South Korea devises another supplementary budget under the new administration's initiative to stimulate economic expansion
A Bold Move: South Korea's Massive Fiscal Boost for Economic Recovery
South Korea's new government has unleashed a powerful punch to revitalize their economy with a whopping $14.7 billion (30.5 trillion won) supplementary budget, marking President Lee Jae Myung's top priority - economic recovery.
This financial overhaul, announced by the finance ministry, includes 20.2 trillion won of fresh spending, aiming to reignite economic growth and assist vulnerable sectors. Simultaneously, it makes up for 10.3 trillion won from an expected tax revenue shortfall.
The revised budget follows Lee's election victory on Jun 3 and the passing of the first supplementary budget in May. Vice Finance Minister Lim Ki-keun explained during a media briefing, "Economic conditions are dire, and this extra budget means government finances will play a more active role."
The South Korean central bank reduced its economic growth forecast for this year to 0.8% in May, citing various uncertainties, including US tariffs, and slashed interest rates for a fourth time. Asia's fourth-largest economy unexpectedly contracted initially due to US President Donald Trump's trade war and domestic politics.
The main spending will go towards Lee’s cornerstone policy: a universal cash handout scheme, providing 150,000-500,000 won vouchers to every citizen, totaling 10.3 trillion won. Previously, Lee introduced this policy as mayor of Seongnam City, which gained national attention during the COVID-19 pandemic under the Moon Jae-in administration.
Additional commitments include financial assistance for the construction sector, investments in artificial intelligence, and aid to small and medium-sized enterprises, as well as debt restructuring programs for small businesses.
To finance the budget, the finance ministry will issue additional treasury bonds, totaling 19.8 trillion won, raising the country’s fiscal deficit to 4.2% of GDP and government debt to 49.0% of GDP.
Despite concerns about potential inflation and long-term fiscal health, the announcement signals Lee's administration's eagerness to swiftly bolster growth. As the government submits the budget proposal to parliament, only time will tell whether this ambitious plan will be the game-changer South Korea's economy needs.
[2]: https://www.oecd.org/ economies/Korea/55015249.pdf[3]: https://www.bankofkorea.or.kr/event/ pressBoard/202305/Arc1231996526.do
The South Korean government, aiming to address economic troubles, has planned to finance a portion of the supplementary budget through issuing treasury bonds, potentially increasing the country's fiscal deficit due to increased spending on 'us tariffs' affecting businesses, as well as spending on areas like the construction sector, artificial intelligence, and small and medium-sized enterprises. Due to the economic recovery plan, the government expects a more active role for 'finance' in stabilizing and bolstering the economy.
