The budget plan comes as South Korea prepared support packages for its automotive and chip divisions earlier this month, which packages provide export growth to the U.S. for the trade-dependent economy in recent years and are now preparing for the impact of U.S. tariffs.
“There are concerns that some companies are struggling to liquidity due to global trade conflicts caused by U.S. tariffs,” Acting President Han Duck-soo said in a speech at the cabinet meeting.
Bank of South Korea has shown that this reflects a “significant risk” of U.S. President Donald Trump’s tariff policy, suggesting it will lower interest rates in May and keep interest rates stable on Thursday, leaving the door open to further easing the currency.
The central bank said the downside risk of its growth rate of 1.5% this year is high, and the economy is likely to sign contracts in the first quarter. It estimates that the proposed additional budget will increase the growth by 0.1 percentage point.
The Ministry of Finance said that in the total expenditure of the new 122,000 won will be funded by issuing additional government bonds. The budget plan includes 2.1 trillion won’t’s response to trade risks and 1.8 trillion won to boost the country’s AI industry. It also includes 4.3 trillion won financial support measures for small businesses and 32 trillion won natural disaster response after the country recently suffered the worst wildfires on record.
The additional budget will increase the country’s fiscal deficit from 3.2% of GDP this year, from 2.8%, and government debt to 48.4% of GDP, from 48.1%.
The ministry also plans to raise the cap on stable foreign exchange bond sales to $3.5 billion this year, up from $1.2 billion, ready as market volatility increases, while lowering the cap on bond issuances that win bonds.
In December last year, South Korea’s opposition-controlled parliament passed this year’s government budget, cutting the government’s proposal.
The opposition’s refusal to pass the proposed budget in full is one of the reasons for former President Yoon Suk Yeol’s shocked decision to declare martial law, which has triggered South Korea’s worst constitutional crisis in decades.
Yoon was removed from office this month after being impeached, and the presidential election will be held on June 3.
The latest budget proposal was also approved by parliament controlled by the left-leaning Democrats, which recently argued that the larger supplementary budget was 35 trillion won.
