South Korea’s 15 trillion won ($13.3 billion) extra budget will channel money to the medical and tourism sectors as the Park administration seeks to cushion the impact of a deadly respiratory disease.
Much of the stimulus package, which was foreshadowed last week, will be funded through an increase in bond sales this year, the finance ministry said Friday. The new spending, which is equivalent to 1 percent of gross domestic product, will boost growth by 0.3 percentage points and help create 124,000 jobs, according to the ministry.
President Park Geun Hye’s approval rating is near a record low as the nation struggles to contain the fallout from the spread of Middle East Respiratory Syndrome, which has claimed at least 33 lives and prompted the government to cut its economic growth forecast for 2015.
“This year’s extra budget won’t significantly boost growth because much of the spending is tailored for MERS, but it will at least prevent consumption from falling further,” said Yoon Yeo Sam, a Seoul-based fixed-income analyst at Daewoo Securities Co.
Some 2.5 trillion won will be allocated to medical institutions and the tourism industry, with another 3.1 trillion won going to small businesses that are struggling to pay wages to their workers, the ministry said. Loans will be made on relaxed terms to affected companies while people who have lost their jobs will be retrained.
Finance Minister Choi Kyung Hwan on Thursday said the economy was in a “very difficult condition” because of MERS and a drought. The parliament needs to approve the extra budget -- which increases the spending power of the national government and state-run funds -- swiftly after it is submitted on July 6, Choi said.
An additional 9.6 trillion won in treasury bonds will be issued this year, taking sales to 110.3 trillion won for 2015, the finance ministry estimates.
They will be sold via auctions distributed evenly during the remainder of 2015 to make sure the extra supply doesn’t add to market volatility, it said.
Government debt will increase to 37.5 percent of GDP, or 579.5 trillion won, after the supplementary budget, the ministry forecasts, compared with 35.7 percent of GDP projected earlier.