SEJONG, South Korea (Reuters) – South Korea on Wednesday unveiled a proposed 6.7 trillion won ($5.87 billion) supplementary budget the government says is needed to tackle unprecedented air pollution levels and boost exports bruised by weak demand.
FILE PHOTO: Cho Eun-hye (R) and her one-and-a-half-year-old Korean Jindo dog Hari, both wearing masks, go for a walk on a poor air quality day in Incheon, South Korea, March 15, 2019. Picture taken on March 15, 2019. REUTERS/Hyun Young Yi
The package includes 2.2 trillion won to battle pollution, including subsidies for replacing old diesel-powered cars, buying air purifiers and encouraging use of renewable energy technologies.
Another 4.5 trillion won would be increasing export credit financing and creating jobs.
The extra budget is to “resolve a national predicament caused by fine dust” and to support the economy, the finance ministry said.
Finance Minister Hong Nam-ki said it would contribute to helping lift growth in Asia’s fourth-largest economy by 0.1 percentage point this year and add at least 73,000 jobs.
But economists saw limited stimulative effect.
“It is better than doing nothing to lift the growth in the second half, but both size-wise and content-wise, it won’t be a catalyst for economic recovery,” said Lee Sang-jae, chief economist at Eugene Investment.
Markets shrugged off the government’s stimulus proposal.
In March, parliament approved a bill designating the air pollution problem a “social disaster”, paving the way for President Moon Jae-in’s government to draft a fiscal stimulus program to combat it.
Also in March, exports contracted for a fourth month in a row.
Last week, the central bank cut its 2019 growth forecast to a seven-year low of 2.5 percent, underlining worries that weak external demand and trade frictions could stunt economic recovery.
WORRY ABOUT EMPLOYMENT
Loss of jobs is also a worry. South Korea’s unemployment rate jumped to a nine-year high in January, hurt by the government-led hikes in minimum wages and growth concerns among businesses.
Employment conditions improved slightly in March, but the situation remains difficult, the finance ministry has said.
To fund the proposed extra budget, the government plans to issue 3.6 trillion won of deficit-covering bonds, according to the ministry’s budget chief.
The remaining 3.1 trillion won will come from above-target tax revenue collected in 2018 and funds that state-owned companies manage.
This year marks the fifth straight year for South Korea to propose an extra budget for stimulus, sparking criticism that this no longer is an emergency measure.
Asked if the economic situation warrants increases in spending, Finance Minister Hong said his team is making “pre-emptive responses” to boost growth, as is allowed by South Korea’s economic stimulus law.
South Korea can draw up an extra budget when there is a war or large-scale disaster outbreaks, or when there are concerns over economic recessions and mass lay-offs, according to the national finance act.
Moon’s ruling Democratic Party likely faces a challenge winning parliamentary approval of the budget bill, as it only holds 43 percent of the National Assembly’s 300 seats. Moon will need support from nearly 30 opposition lawmakers.
“It seems like it cannot pass the parliament by May, given the current situation of opposition parties’ resistance,” said Park Sang-hyun, chief economist of Hi Investment & Securities.
Reporting by Joori Roh and Cynthia Kim; Editing by Richard Borsuk