3rd Supplementary Budget Estimated at 30 Tril. Won

Deputy Prime Minister Hong Nam-ki (left) and Roh Hyung-wook, chief of the Office for Government Policy Coordination, talk at a government meeting on April 22.

The South Korean government’s budget execution is expected to hit an all-time high this year to deal with the economic repercussions of COVID-19.

The Ministry of Economy and Finance is currently working on this year’s third supplementary budget for submission to the National Assembly in early June. The government came up with the first supplementary budget bill worth 11.7 trillion won in March and the second worth 7.6 trillion won in April. Then, the government increased the size of the second bill to 11.2 trillion won to provide disaster relief funds for everyone. The combined size of the bills is 22.9 trillion won and it is less than the size of the supplementary budget prepared in 2009, 28.9 trillion won.

However, the record high is likely to be exceeded once the third bill, estimated at 30 trillion won, is added. According to the government, its special measures for employment stabilization announced on April 22 require 10.1 trillion won and 9.3 trillion won out of the total will be prepared from the third supplementary budget.

Tax revenue adjustment is also likely to follow with economic growth estimates lowered. The government previously estimated this year’s national tax revenue based on an annual nominal growth rate of 3.4 percent, which is no longer valid. The size of the adjustment is likely to exceed 2.4 trillion won.

Recapitalization of Korea Development Bank and the Export-Import Bank of Korea, estimated at two trillion won to four trillion won, will be carried out with the third supplementary budget, too. Including spending for economic stimulus purposes, the third supplementary budget is forecast to reach 30 trillion won or so, and then this year’s total supplementary budget will exceed 53 trillion won.

The government’s fiscal soundness cannot but deteriorate as a result. Until the pre-revision second supplementary budget, the government’s overall fiscal deficit in relation to the GDP was 2.3 percent and real fiscal deficit in relation to the GDP was 4.3 percent, the highest since 1998. The latter may top 5 percent if the third supplementary budget is executed and this year’s economic growth falls below zero.

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