South Korea on Tuesday drew up an extra budget worth 17.3 trillion won ($15.4 billion) for this year in a bid to revitalize its economy faced with gloomy market conditions at home and abroad.
The budget plan, which was endorsed by a Cabinet meeting, is the largest since 2009 when the nation unveiled 28.4 trillion won in additional spending in the wake of the global financial crisis.
The proposal for the latest extra budget, which will come on top of a 342 trillion won annual budget for 2013, will be submitted to the National Assembly for approval on Thursday.
"The economy is now going through a low-growth period by expanding less than 1 percent for nearly two years, making it tough for our people to earn a living and hurting the overall economic vitality," Finance Minister Hyun Oh-seok told reporters in a press conference.
"We drew up this extra budget big enough to make our fiscal capacity play an active role in ensuring that our economy regains its growth momentum," he added.
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, said the finance ministry which is in charge of the country's budget affairs.
The remainder 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 ordinary working-class people.
In particular, the government plans to use the money to create about 40,000 additional jobs, a move it expects would encourage the private sector to follow suit in the state-led job creation efforts.
Separately, the government will also tap into state-run funds worth 2 trillion won aimed at bolstering the sluggish housing market. This is not subject to parliamentary approval.
To finance the extra budget, the government plans to issue a total of 15.9 trillion won worth of bonds. The rest will be funded by using tax surplus from last year and other resources in a bid to minimize the debt sale, the ministry said.
"It could be inevitable to see our fiscal status worsen temporarily due to the extra budget but I believe it is more important to normalize economic growth through such stimulus measures and eventually lay the foundation for stronger fiscal health in the long term," Hyun said.
The extra budget plan is the latest in a string of economic stimulus measures that the new government has unveiled to kick-start the slowing economy after it took office in February.
Earlier this month, the government announced a set of measures including diverse tax incentives to thaw the almost-frozen housing market transactions.
The move comes as South Korea's economy is showing signs of losing its momentum in the face of lingering uncertainty at home and abroad.
The gross domestic product grew less than 1 percent on-quarter for the seventh straight quarter, which is the longest-ever streak of such low growth rates.
The economy grew 2 percent in 2012, 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 in December.
The government expects that its extra budget plan could translate into an additional 0.3 percentage point hike in gross domestic product for this year. It will also raise the growth rate by 0.4 percentage point in 2014.
Many market watchers reacted positively, saying that it is a step in the right direction given the current economic conditions, but some worried that the timing might be a little bit late in having the full extent of its intended impact.
"Timing is everything here," said Park Seong-wook, a researcher at the Korea Institute of Finance. "There will be more momentum if the parliament acts fast in passing the budget."
The government agreed, saying that it will do its best in passing the budget through the National Assembly as soon as possible to maximize its impact on the economy.
"Our hope is that this extra budget proposal passes the National Assembly as quickly as possible to maximize its impact,"
Hyun said. "The government will be ready to carry out the spending plans as soon as parliament passes the budget proposal." (Yonhap News)