How Korea's newly revealed 17.3trn supplementary budget will affect economy

How helpful will it be?

According to DBS, the finance ministry announced a supplementary budget worth KRW 17.3trn yesterday. The actual boosting impact on the economy, however, is far less than the headline numbers showed.

Fresh spending in the budget amounts to only KRW 5.3trn. The rest KRW 12trn will be used to cover the shortfall of government revenues this year as a result of slower than expected economic growth.

Here's more from DBS:

Additional expenditures will amount to KRW 7.3trn, if adding the KRW 2trn spending from the public investment funds. As such, GDP growth is estimated to be boosted by a total of 0.6ppt.

The stimulus effects will emerge in 2H13, as the budget will be submitted to the parliament this week and is expected to be approved by May.

Impact on the fiscal position will be relatively large. Taking into account both the revenue losses and expenditure increases, the annual fiscal balance will deteriorate significantly to 1.8% of GDP this year, compared to the government’s original estimate of 0.3%, and also worse than our forecast of 1.2%.

The financing of the supplementary budget will almost entirely rely on new bond issuances (KRW 15.8trn), which implies some upward pressures on market yields.

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