SEOUL • South Korea yesterday unveiled a 35.3 trillion won (S$40.4 billion) supplementary budget, to raise the total stimulus to 270 trillion won for an economy facing its worst growth challenge since the 1998 Asian financial crisis.
Announcing South Korea's largest 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 (GDP) to counter the economic fallout from Covid-19.
The latest budget aims to direct more spending on protecting jobs and developing a vaccine for the coronavirus, and to provide discount coupons to boost consumption. More loans will be made to small and 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)," Mr Hong told journalists in a briefing days before 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 its worst performance since 1998.
In addition to the earlier increases in fiscal stimulus, the 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 last month and the outlook for the trade-reliant economy is cast in doubt due to the 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.
South Korea's revised economic growth forecast for this year, down from 2.4 per cent, set to be its worst performance since 1998.
The net increase in treasury bond issuance will be 108.5 trillion won, more than double the amount last year.