South Korea yesterday proposed a 17.3 trillion won (US$15.4 billion) supplementary budget to help boost the economy, including further spending on defense at a time of heightened tensions with North Korea.
The first fiscal stimulus package for four years, which requires parliamentary approval, would cover a 12 trillion won shortfall in revenue and provide 5.3 trillion won in new spending, the South Korean Ministry of Finance said.
The spending is mostly aimed at job creation, support for small and medium-sized firms, and strengthening welfare programs, a ministry statement said.
South Korea’s economy — the fourth-largest in Asia — has been hit by sluggish export demand from Europe and the US, and it expanded just 2 percent last year, its slowest pace for three years. The central bank recently slashed its forecast for economic growth for this year to 2.8 percent from 3.2 percent.
The ministry predicted the extra budget would help create 40,000 jobs and boost growth by 0.3 percentage points this year and 0.4 percentage points next year.
The budget included an extra 217.4 billion won in defense spending as Seoul is engaged in a standoff with the North, which has threatened “thermo-nuclear war.”
Expenditure would focus on military installations and weaponry on islands near the tense Yellow Sea border, and training “white hackers” to guard against cyberattacks from the North.
South Korean Finance Minister Hyun Oh-seok said the extra budget’s initial strain on South Korea’s fiscal health would be outweighed by its long-term impact on economic growth.
“The slow growth that has plagued our economy for the past two years is exacerbating the difficulty in people’s lives and dampening our economic vitality,” Hyun said.
South Korea’s economy, which depends on exports for more than half of its growth, has also been squeezed by a strengthening of the won against the yen, which blunts the competitiveness of its key exporters, such as Hyundai and Samsung.