South Korea Unveils $22 Billion Stimulus Budget to Revive Economy
In a strategic maneuver to rejuvenate its slowing economy, South Korea has launched a substantial supplementary budget proposal valued at 30.5 trillion won (approximately $22.1 billion). This move signifies a pivotal shift, with the first downward revision of projected revenue in five years, totaling 10.3 trillion won.
President Lee Jae Myung emphasized the need for action at a recent Cabinet meeting, acknowledging the current economic decline’s severity and advocating for the utilization of public finances. He focused on two main priorities: actively stimulating the economy and ensuring equitable benefits distribution based on necessity. These priorities reflect broader values and ideological perspectives.
The newly approved plan, which entails universal cash payments to all citizens, is slated for submission to the National Assembly. The supplementary budget incorporates approximately 20.2 trillion won in new expenditure, primarily aimed at boosting economic activity (15.2 trillion won) and supporting livelihoods (5 trillion won).
Central to the stimulus package is a 10.3 trillion won initiative, distributing cash through “spending coupons.” These payments, ranging from 150,000 to 500,000 won, are scaled by income level. Initially, every Korean citizen will receive a minimum of 150,000 won, with additional amounts allocated to lower-income groups. In a subsequent phase, the top 10 percent of earners will be excluded, leaving 90 percent to receive an extra 100,000 won.
An allocation of 2.7 trillion won aims to bolster a struggling construction industry, which has experienced a sustained downturn. Furthermore, 1.2 trillion won is earmarked to foster startups and industries focused on artificial intelligence and renewable energy, paving the way for long-term economic growth.
The 5 trillion won designated for livelihood support primarily targets small business owners and self-employed workers who face unprecedented challenges, including rising loan defaults and business closures. Within this allocation, 1.4 trillion won is dedicated to alleviating debt for chronically distressed borrowers, and 1.6 trillion won is allocated to reinforce the employment safety net through job-seeking benefits and support for delayed wages.
The government has also revised its revenue forecast downward by 10.3 trillion won, a significant adjustment not seen since the early stages of the COVID-19 pandemic in July 2020. At the close of April, Korea’s fiscal deficit stood at 46.1 trillion won, marking the third-largest shortfall recorded for the month. With the additional spending, this deficit is expected to expand substantially.
For the full year, projected revenue totals 642.4 trillion won, a reduction from the previous figure of 651.6 trillion won. Meanwhile, total government expenditure has risen from 673.3 trillion won to 702 trillion won.
Consequently, the end-of-year fiscal deficit is forecasted to reach 110.4 trillion won, an increase from the prior year’s 91.6 trillion won, raising the deficit-to-GDP ratio to 4.2 percent from an earlier estimate of 3.3 percent.
South Korea’s national debt, currently around 1,200 trillion won, is projected to surpass 1,300 trillion won by the year’s end, driving the debt-to-GDP ratio to 49 percent.
To address the fiscal gap, the government plans to issue 19.8 trillion won in treasury bonds, supplemented by approximately 10 trillion won through budget restructuring and reserves utilization.
Despite the burgeoning deficit, South Korea’s fiscal health remains robust by international standards. This additional budget is anticipated to augment economic growth by 0.1 to 0.2 percentage points, nudging the nation’s growth into the 1 percent range. Presently, the Bank of Korea suggests a growth rate of 0.8 percent for the year, while the International Monetary Fund projects a 1 percent expansion.
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