South Korea Raises Extra Budget to 11 Trillion Won to Aid JobsBy
Funds earmarked to create jobs as shipbuilders cut workers
Capital buffers will be bolstered at Korea’s policy banks
South Korea’s government said it will submit a plan to the parliament on July 26 for an 11 trillion won ($9.7 billion) supplementary budget to cushion risks to the job market from corporate restructuring.
The extra budget is an increase from about 10 trillion won the government had announced in its economic policy outlook last month, and may have benefited from excess tax receipts this year. The government will take steps to seek approval by the parliament soon to maximize the budget’s effects, the finance ministry said in a statement.
A slump in exports and corporate investment in South Korea have worsened employment conditions, and restructuring in the shipbuilding industry is expected to lead to more job losses, the ministry said. About 56,000 to 63,000 shipbuilding jobs may be cut by 2017, according to the Korea Offshore & Shipbuilding Association.
Of the 11 trillion won in the supplementary budget:
- 1.9 trillion won will be invested as a capital buffer for policy banks in case of losses during corporate restructuring
- 1.9 trillion won will be used to create jobs and offer job training, especially in the shipbuilding sector, and jobs for youth
- 2.3 trillion won will be used to aid regional economies where shipbuilders are located
- The remainder will be used to repay government debt or will be allocated to local governments
The supplementary budget is expected to create 68,000 jobs and increase Korea’s growth rate by 0.1 percentage point to 0.2 percentage points in 2016 and 2017, respectively, according to Friday’s statement.
The Bank of Korea said after its policy meeting on July 14 that the rate cut in June and the supplementary budget may boost growth by 0.2 percentage points. Nonetheless, the central bank lowered its 2016 growth projection to 2.7 percent from 2.8 percent, citing risks from corporate restructuring, implementation of an anti-corruption law and the U.K.’s Brexit vote.