The South Korean government announced its second supplementary budget for 2025, amounting to KRW 30.5tn, significantly larger than the first supplementary budget of KRW 12.2tn introduced in April. The new budget includes: 1) KRW 15.2tn to boost consumption and investment, 2) KRW 5tn for support to SMEs and vulnerable groups, and 3) KRW 10.3tn to offset the shortfall in tax revenues. The centerpiece of the stimulus is a universal cash handout program, offering KRW 150,000–500,000 in vouchers per citizen, totaling KRW 10.3tn. Additional measures include: government purchases of unsold housing units, front-loaded public infrastructure spending, investments in emerging industries such as AI and renewable energy, and a debt restructuring package for small business owners.
The fresh fiscal injection totals KRW 20.2tn (0.8% of GDP). After excluding items like debt restructuring, the effective stimulus is significantly smaller. Moreover, a substantial portion of the new spending is not in the form of direct public investment or consumption. Consumption vouchers, for example, may partially end up in savings rather than being fully spent. Based on a fiscal multiplier estimate of 0.4–0.5, we project that the second supplementary budget will lift GDP growth by approximately 0.3ppt over the next year.
Post-pandemic fiscal consolidation will be further delayed. Due to weak tax revenues and constrained public funds, the government plans to finance KRW 19.8tn of the second supplementary budget through new KTB issuance. As a result, net fiscal deficit is expected to rise to 4.2% of GDP in 2025, up from 3.3% following the first supplementary budget. Government debt is also set to increase to 49.0% of GDP, up from 48.4%.
Ma Tieying 馬鐵英, CFA
Senior Economist - Japan, South Korea, & Taiwan 經濟學家 - 日本, 南韓及台灣
[email protected]Topic
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