South Korea unveiled on Wednesday a 35.3 trln won ($28.8 billion) supplementary budget, to raise the total stimulus to 270 trillion won for an economy facing its worst growth since the 1998 Asian financial crisis due to the coronavirus pandemic.
Announcing South Korea’s largest ever supplementary budget, and the third this year, the government has put in place support measures equivalent to about 14 per cent of gross domestic product to counter the economic fallout from the coronavirus, the Reuters reported.
The latest budget aims to direct more spending on protecting jobs, development of a vaccine for Covid-19, and to provide discount coupons to boost consumption. More loans will be made to small- to medium-sized businesses hit by slumping sales.
Finance Minister Hong Nam-ki said the government had to look past concerns about taking the debt-to-GDP level higher, which is projected to increase to 43.5 per cent of the economy from just below 40 per cent before the outbreak.
“We’re facing an economic crisis now, we had no choice but to do more on the fiscal front as fiscal policies are the last bulwark (of government policies),” Hong told journalists in a news briefing days prior announcing the additional budget.
On Monday, South Korea reduced its economic growth forecast this year to 0.1 per cent from 2.4 per cent, predicting the worst performance since 1998.
In addition to the earlier increases in fiscal stimulus by the government, Bank of Korea has cut key interest rates twice since March.
The proposed supplementary budget will provide a fiscal injection of 23.9 trillion won, and cover an anticipated 11.4 trillion won shortfall in revenues due to the economic slowdown.
Exports tumbled for the third straight month in May and the outlook for the trade-reliant economy is cast in doubt due to the global pandemic and simmering tensions between the United States and China.
To fund the budget, subject to parliamentary approval, South Korea will issue an additional 23.8 trillion won in government bonds, taking total treasury bond issuance for this year to 167.8 trillion won.
The net increase in treasury bond issuance will be 108.5 trillion won, more than double of the amount last year.