South Korea's new government has unveiled 5.3 trillion won (US$4.7bil) in stimulus spending plans to generate jobs, support small business and bolster property prices hit by slow economic growth as well as fierce competitive pressure from the sliding yen.
The government of President Park Geun-hye, sworn in less than two months ago, said in a statement that fresh stimulus spending would help lift this year's economic growth to 2.6% or higher from around 2.3% seen otherwise.
The stimulus spending plans are part of a 17.3-trillion-won extra budget bill that the cabinet is due to send to parliament this week for approval, with 12 trillion won to make up for a budget shortfall because of lower than forecast revenue.
“I believe that, in conjunction with other policies like the property market measures announced earlier, an extra budget of this magnitude will be enough to kindle hopes for an economic recovery,” Finance Minister Hyun Oh-seok told reporters at an embargoed briefing held last week.
North Korea's threats of a nuclear war and the Japanese Prime Minister Shinzo Abe's massive monetary easing drive to end deflation both have recently emerged as fresh risks to South Korea's export-reliant economy.
But the relatively small stimulus plan 0.4% of annual gross domestic product (GDP) contrasts with Japan's massive stimulus policies and reflects a different, milder set of risks facing South Korea than those facing its bigger neighbour.
South Korea's economy has been growing for 15 successive years, inflation is a bigger risk than deflation, its currency is largely seen as undervalued and its household savings need to be raised after years of overspending.
The supplementary budget bill has been drawn up because Park's government sharply downgraded this year's economic growth projection from that of the previous government, which saw Asia's fourth largest economy growing 3% this year.
Public funds will boost it spending by two trillion won this year to help support the economy. These stimulus plans, along with property market boosting measures announced earlier, would lift this year's economic growth by 30 basis points, or 0.3%, and next year's by 40 basis points, the ministry said.
The government now plans to sell a net additional 8.8 trillion won worth of bonds this year to fund the extra budget. It will spread out the increase in debt sales to avoid a spike in supply in certain months or specific tenors.
The government now expected this year's fiscal deficit to reach 1.8% of annual GDP, compared with a 0.3% deficit seen previously and a 1.4% deficit posted last year, the ministry said. - Reuters
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