South Korea is drafting an extra budget of 15 trillion won (US$13.38 billion) to boost support for small businesses and safeguard jobs as the COVID-19 pandemic prompts the government to retain social distancing curbs, the South Korean Ministry of Finance said yesterday.
Total government spending would increase to a record 573.0 trillion won this year, up 11.9 percent from last year, while expected tax revenue is expected to grow just 0.3 percent, the ministry said.
That is set to worsen the debt-to-GDP ratio by 8.4 percentage points to a record 48.2 percent this year, versus 43.9 percent last year, it said.
“We want to make sure there are no blind spots left when it comes to using support funds [for small businesses], compared to how we spent them before,” Deputy Minister of Finance for the Budget Ahn Do-geol told a news conference.
The government has urged conglomerates to share some of their profits with smaller businesses that have borne the brunt of the pandemic while big exporters enjoyed a rapid recovery in earnings.
The spending adds to pandemic-fighting stimulus of about 310 trillion won since last year, when the economy shrank 1.0 percent, the most since 1998.
Beside the extra budget funds, 4.5 trillion won would be allocated toward job-keeping funds and childcare subsidies from the existing budget.
More than half the extra budget would provide cash handouts to mom-and-pop stores and people laid off, while another 4.1 trillion won would go to virus treatment facilities and vaccine purchases.
To finance the extra stimulus, the ministry would step up treasury bond issuance by 9.9 trillion won and rework other spending plans to make up the rest, it said.
South Korea’s manufacturing activity expanded at the fastest pace in more than a decade last month, even as the Lunar New holiday across Asia cut demand and spurred a slowdown in China.
A report by IHS Markit showed a purchasing managers’ index for South Korean manufacturing jumped to 55.3 last month, rising further above the 50-threshold that separates expansion and contraction to mark the highest reading since April last year.
The figure adds to the optimistic outlook for the nation’s economy, after a Monday release showed that exports continued to expand for a fourth straight month.
Also supporting South Korea’s recovery is a deepening shortage of semiconductors.
A separate report from the Statistics Korea showed that industrial output grew 7.5 percent in January from a year earlier, beating an economists’ consensus of 5.9 percent in a Bloomberg survey.
Output still fell 1.6 percent from the previous month, with the statistics office partly attributing the monthly drop to a high base in December last year.
Additional reporting by Bloomberg
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