South Korea unveils $ 14.3 billion stimulus package to support economy

Reuters: South Korea proposed on Friday 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 11.8 trillion won supplementary budget, which included new spending plans of 6.2 trillion won, and 5.6 trillion won to cover a tax shortfall, the finance ministry said in a statement.

It also confirmed a separate financial package totalling 9.9 trillion 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.

“Our fiscal soundness will worsen temporarily, but we have decided it is more important to make the economy recover early on and create a sturdy fiscal foundation,” said Vice Finance Minister Bang Moon-kyu told an embargoed briefing.

The government is targeting gross domestic product growth of 3.1% this year, though analysts doubt it could be achieved even with the additional spending - the finance ministry expects the total stimulus to boost economic growth by 0.3 percentage points.

The ministry said it plans to sell 9.6 trillion 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 includes plans to increase the amount of credit guarantees and trade financing, and has no direct bearing on the budget. The outbreak of MERS in late May – the largest outside of Saudi Arabia with 33 deaths and 184 cases reported so far – has scared off tourists and kept South Koreans off cinemas, restaurants and shopping areas.

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 3.0% of the annual gross domestic product this year, higher than a 2.1% deficit projected earlier.