Sejong, South Korea: South Korea yesterday proposed a stimulus package worth 16.1 trillion won ($14.31 billion) to jump-start Asia’s fourth-largest economy as it fights to overcome the twin challenges of weak domestic and global demand.
The government set an 11.8trn won supplementary budget, which included new spending plans of 6.2trn won, and 5.6trn won to cover a tax shortfall, the finance ministry said. It also confirmed a separate financial package totalling 9.9trn won.
Even though the additional spending will put a strain on the government’s fiscal position, the ministry said Seoul’s immediate priority is to revive an economy reeling from a collapse in exports and the spread of the deadly Middle East Respiratory Syndrome (MERS) virus.
The ministry said it plans to sell 9.6trn won in new treasury bonds to fund the bulk of the supplementary budget, with the remainder funded by other means such as existing public funds.
The financial support package include plans to increase the amount of credit guarantees and trade financing, and has no direct bearing on the budget.
Confidence among consumers and manufacturing companies slumped to multi-year lows, recent surveys showed, highlighting why policymakers had to move quickly to prop up the ailing economy.
The government’s fiscal deficit would now reach 3pc of GDP this year, higher than a 2.1pc deficit projected earlier.
The debt-to-GDP ratio will also rise to 37.5pc this year from the previous target of 35.7pc projected, the ministry said. This is still far lower than the world average of 57.7pc in 2014, according to the CIA’s World Factbook.
The central bank cut the policy interest rate by 25 basis points to a record low of 1.5pc last month, citing the impact of MERS on domestic demand. Some analysts say the Bank of Korea will have to cut the rate again in coming months.
The government will move the supplementary budget to parliament on Monday for approval.