The Cabinet on Tuesday approved the Finance Ministry’s stimulus package worth 20.3 trillion won ($17.9 billion) to revitalize the sluggish economy and boost exporters hit hard by the weaker yen caused by Japan’s monetary easing.
The package highlights economic policymakers’ project to draw a supplementary budget totaling 17.3 trillion won, which marks the second-highest figure in history following the record of 28.4 trillion won in 2009 under the Lee Myung-bak administration.
The other 3 trillion won of the total 20.3 trillion won will be raised through public funds, according to the Finance Ministry.
The Finance Ministry said it expects that about 40,000 jobs could be created by allocating the extra budget, which should garner endorsement from the National Assembly.
By inducing private consumption and corporate investment, “the GDP growth for the second half will possibly reach 3 percent or more through the package,” said Deputy Prime Minister and Finance Minister Hyun Oh-seok.
Hyun said he hopes that the extra budget proposal will work through the National Assembly as quickly as possible to maximize its efficacy.
But the situation is not favorable as the main opposition Democratic United Party is set to demand a full-fledged revision of the extra budget plan.
A lawmaker criticized the plan, stressing that about 90 percent of the supplementary budget is projected to be raised by issuing government bonds.
The Finance Ministry plans to issue a total of 15.9 trillion won worth of government bonds. The rest will be funded by using the tax surplus from last year and other resources in a bid to minimize the debt sale.
Under the scenario, sovereign debt may snowball to 480 trillion won, up from the earlier estimate of 464 trillion won. Korea’s sovereign debt stood at 166 trillion won 10 years ago.
According to the ministry, of the extra budget plan, 12 trillion won will be used to fill the estimated revenue shortfalls caused by the slowing economic recovery and scrapped plans to sell stakes in banks this year.
The remaining 5.3 trillion won is a net increase in the government’s budget, which will mostly be spent on boosting job creation and stabilizing the livelihoods of the underprivileged.
President Park Geun-hye earlier told Finance Ministry officials that an extra budget would help normalize the government’s tax revenue.
Several weeks ago, the government announced a set of measures including diverse tax incentives to thaw the housing market.
The move comes as the economy is showing signs of losing momentum in the face of lingering uncertainty at home and abroad.
The GDP grew less than 1 percent on-quarter for the seventh straight quarter, which is the longest-ever streak of low growth rates.
The economic growth stayed at 2 percent last year, the slowest gain in three years. In March, the government revised its growth outlook for this year to 2.3 percent from 3 percent predicted at the end of 2012.
