Ministry of Economy and Finance

Ⅰ. Policy directions for the Supplementary Budget Proposal   The government approved the First Supplementary Budget Proposal for 2025 at a Cabinet meeting on April 18 (Friday), to support wildfire response efforts and enhancement of trade and AI competitiveness. The budget proposal is scheduled to be submitted to the National Assembly on April 22 for final approval.   In light of the recent massive wildfires in the Yeongnam region – resulting in the worst damage on record – it is imperative to secure fiscal resources for swift recovery efforts while also making proactive investments to reinforce the government’s capacity for disaster and emergency response. In addition, unprecedented tariff shocks are raising serious concerns over potential damages to Korean industries and enterprises, while global competition for leadership in cutting-edge technologies continues to intensify. In this context, it is essential to provide support measures to alleviate the burden on export-oriented businesses affected by tariffs and to shore up the competitiveness of strategic high-tech industries such as AI and semiconductors. Last but not least, as the delayed recovery in domestic demand has exacerbated the difficulties faced by low-income households and small business owners, it is critical to implement measures aimed at easing the financial burden on small businesses and providing targeted support to ensure the livelihood stability of vulnerable populations.   Under these circumstances, the Supplementary Budget Proposal amounts to a total of 12.2 trillion won, comprising 3.2 trillion won for ①disaster and emergency response, 4.4 trillion won for ②enhancement of trade and AI competitiveness, 4.3 trillion won for ③people’s livelihood support, and 0.2 trillion won for ④other purposes including government bond interest and hosting of international events.   Change in overall fiscal expenditure   (Total revenue) An increase of 1.3 trillion won compared to the original budget. (651.6 → 652.8 trillion won)   (Total expenditure) An increase of 12.2 trillion won compared to the original budget. (673.3 → 685.5 trillion won)     (Managed Fiscal Balance) A decrease in 10.9 trillion won in comparison to the original budget (-73.9 → -84.7 trillion won), corresponding to a decline of 0.4%p relative to GDP (-2.8 → -3.2%).   (Government Debt) An increase by 6.0 trillion won compared to the original budget (1,273.3 →1,279.4 trillion won), representing a rise of 0.2%p relative to GDP (48.1% → 48.4%).    (trillion)   2024 Budget (A) 2025 Budget                Changes                 (B-A)                 Original                 (A)                  Supplementary                (B) Total Government Revenue 612.2 651.6 652.8 +1.3% Total Government Expenditure 656.6 673.3 685.5 +12.2% Consolidated Fiscal Balance (% to GDP) -44.4 (-1.8) -21.7 (-0.8) -32.6 (-1.2) -10.9 (-0.4%p) Managed Fiscal Balance (% to GDP) -91.6 (-3.6) -73.9 (-2.8) -84.7 (-3.2)                      -10.9 (-0.4%p) Government Debt (% to GDP)  1,195.8 (47.4) 1,273.3 (48.1) 1,279.4 (48.4) +6.0 (+0.2%p)     Ⅱ. Three pillars of the Supplementary Budget Proposal   1. Disaster and emergency response 2. Enhancement of Trade and AI competitiveness 3. People’s livelihood Support     1. Disaster and emergency response (+3.2 trillion won)   ▶  Reinforce disaster relief funds for wildfire damage recovery and support housing stability for affected residents. ▶  Upgrade equipment, infrastructure, and technologies related to disaster prevention and emergency response.   1) Facilitate the swift recovery from wildfire damage (1.4 trillion won). 2) Strengthen disaster and emergency prevention and response capabilities (1.7 trillion won). 3) Improve aviation infrastructure, and aging sewer systems and roads (0.2 trillion won).     2. Trade and AI competitiveness (+4.4 trillion won)   ▶  Expand policy financing by over 25 trillion won to mitigate the impact of tariff-related damages, and double the size of the export voucher program. ▶  Drive innovation in the AI ecosystem by securing 10,000 high-performance GPUs and doubling the training programs for highly skilled talent. ▶  Significantly bolster support for essential infrastructure and financial resources in high-tech strategic industries such as semiconductors.   1) Allocate 2.1 trillion won to Respond to trade risks (2.1 trillion won).   - Support tariff-affected and exporting companies (1.8 trillion won). - Enhance the stability of supply chain of core items (0.2 trillion won) - Take preemptive measures against employment shocks (0.1 trillion won). - Ensure the foreign exchange market stability by raising the issuance ceiling for foreign currency denominated foreign exchange stabilization bonds by $2.3 billion to $3.5 billion.   2) Advance the domestic AI ecosystem (1.8 trillion won). 3) Boost the competitiveness of high-tech strategic industries, including semiconductors (0.5 trillion won).     3. People’s Livelihood Support (+4.3 trillion won)        ▶  Provide 500,000 won credit for small businesses and expand policy financing by 2.5 trillion won.      ▶  Introduce ‘Co-prosperity Payback’[1] to increase sales in traditional markets and local businesses.      ▶  Expand tailored policy financing for vulnerable groups, including low-income workers and those with low credit ratings.  1)  Alleviate the financial burden on small businesses (2.6 trillion won).     2)  Expand the revenue base of small-scale businesses (1.6 trillion won).     3)  Support the livelihood stability of vulnerable groups (0.2 trillion won).   [1] For businesses with annual sales of 3 billion won or less, 20% of the year-on-year increase in credit card spending will be reimbursed in the form of Onnuri gift certificates up to maximum of 300,000 won. Please refer to the attached files.

  [Highlights of S&P’s Rating Action]   Standard & Poor’s (S&P) Global Ratings reaffirmed Korea’s credit rating of AA with a stable outlook. It projected that while the Korean economy may experience a moderate slowdown over the next three to five years, it will maintain a higher average growth rate than most high-income economies. It also expected that the government’s fiscal deficit will “remain modest” over the next three to four years.   S&P specifically projected that Korea’s real GDP growth would slow to 1.2% this year, primarily due to deteriorating global trade conditions, but rebound to 2.0% in the following year; the Korean economy is anticipated to grow at an annual pace of approximately 2% from 2025 to 2028, with per capita GDP expected to surpass $41,000 by 2028.   S&P also noted that it continues to see “Korea’s institutions and policy environment to be key credit supports”; while the unexpected declaration of martial law somewhat undermined confidence in political stability, the swift reversal of the declaration and political institutions’ prompt response helped mitigate the extent of the damage. S&P viewed that the adherence to established rules and processes in the series of events that led to the upcoming presidential election contributed to preventing significant disruption to social and economic stability, stating “Over the period, policy institutions were active in ensuring that the fallout of the political uncertainties did not seriously hurt the economy and financial system”. However, it pointed out that if the recent increased political divisions persist, it “could weaken future governments’ ability to rally popular support for policy changes”.   S&P projected that the general government deficit will narrow slightly to 0.8% of GDP in 2025, compared to 1.0% in 2024, supported by favorable revenue collections. However, the impact of U.S. tariffs on exports and a global economic slowdown could place downward pressure on revenue growth, posing a potential burden on the government’s fiscal consolidation efforts.   S&P further assessed that “Korea also faces limited contingent liabilities from the financial sector.” However, the growing debt of nonfinancial public enterprises (NFPE) in recent years poses a constraint on the country’s fiscal position. In addition, it viewed the potential cost of reunification in the event of the North Korean regime collapse as a highly uncertain and significantly burdensome contingent liability, identifying it as the greatest vulnerability to Korea’s credit rating.   S&P stated that “Korea’s strong external fundamentals are an anchor for the sovereign ratings” such as “a favorable net international investment position and a long record of external surpluses”; the current account surplus is projected to approach 5% of GDP over the next three years. Furthermore, it viewed that Korea’s floating exchange rate system, along with the depth of its actively traded foreign exchange market, “affords the economy a strong external buffer”.     [Implications and Future Plans]   S&P has reiterated its strong confidence in the stability of the Korean economy by affirming Korea’s credit rating at AA with a stable outlook. In particular, amid heightened domestic and external uncertainties – such as the political situation in the country and the evolving trade environment resulting from U.S. tariff policies – this decision is anticipated to exert a positive influence on Korea’s standing in international markets.   Prior to this rating announcement, the government made every effort to safeguard the country’s international credibility. It held a meeting in March between Deputy Prime Minister Choi Sang-mok and the S&P annual consultation team while the relevant ministries systemically responded to annual consultation through the government-wide Joint Response Council on Sovereign Credit Ratings (chaired by First Vice Minister of Economy and Finance). Going forward, the government plans to continue maintaining close communication with global credit rating agencies, including S&P, Moody’s, and Fitch, by actively providing detailed explanations of Korea’s economic situation and policy direction, thereby striving to uphold the nation’s international credibility.       More details about the Rating Action are available on the following: https://disclosure.spglobal.com/ratings/en/regulatory/article/-/view/type/HTML/id/3352800   Please refer to the attached files. 

On April 15 (Tuesday), Deputy Prime Minister and Minister of Economy and Finance Choi Sang-mok chaired the Ministerial Meeting on Economic Affairs and Ministerial Meeting on Strengthening Industrial Competitiveness at the Government Complex-Seoul.   * Participants: Deputy Prime Minister (Chair), and Ministers and Vice Ministers of the Ministry of Science and ICT, Ministry of the Interior and Safety, Ministry of Trade, Industry and Energy, Ministry of Health and Welfare, Ministry of Land, Infrastructure and Transport, Ministry of Oceans and Fisheries, Ministry of SMEs and Startups, Office for Government Policy Coordination, and Financial Services Commission.   The government plans to submit an “Essential Supplementary Budget Plan” worth approximately 12 trillion won to the National Assembly, which is about 2 trillion won more than the originally announced 10 trillion won. The supplementary budget will focus on the following areas: ①Responding to disasters and emergencies, ②Strengthening competitiveness in trade and AI, and ③Improving people’s livelihoods.   Over 3 trillion won will be allocated to respond to large-scale disasters and emergencies. The disaster response fund will be reinforced to more than double its current level of approximately 500 billion won to ensure swift recovery from wildfire damage. Two trillion won will be allocated for the advanced equipment and the disaster reserve fund, additionally introducing six medium- to large-sized forest helicopters, AI surveillance cameras, drones, and multi-purpose wildfire suppression vehicles.   More than 4 trillion won will be invested to respond to rapidly changing trade conditions and to enhance competitiveness in high-tech industries. Over 25 trillion won in policy financing will be provided to support companies facing tariff-related damages or export crises, and the number of companies receiving export voucher support will also be more than doubled. Fiscal support for infrastructure, finance, and R&D in advanced industries such as AI and semiconductors will be expanded by over 2 trillion won.   Furthermore, over 4 trillion won will be provided to support small business owners and vulnerable groups. A new “Burden Relief Credit” program will be introduced, offering 500,000 won per year to small business owners to help cover public utility bills and insurance premiums. A “Co-prosperity Payback” program will also be launched, which reimburses a portion of the year-on-year increase in credit card spending in the form of Onnuri gift certificates for businesses with annual sales of 3 billion won or less. Policy financing to support the livelihood stability of low-income youth and individuals with the lowest credit ratings will also be raised by 200 billion won.    Assistance for the semiconductor industry, expected to be targeted by item-specific tariffs by the U.S. government, will be significantly increased from the original 26 trillion won to 33 trillion won; over 4 trillion won in fiscal resources is also planned to be injected by 2026. Exceptional support will be provided for infrastructure development, including power and water supply. The government will cover 70% of the corporate burden for undergrounding transmission lines for the semiconductor cluster in Yongin and Pyeongtaek. The national budget support ratio for infrastructure in specialized zones for advanced strategic industries will be significantly increased to 30-50%; for large-scale clusters with investments exceeding 100 trillion won, the limit for national budget support will be raised from 50 billion won to 100 billion won.   Investment by semiconductor companies will be actively supported. A new investment subsidy will be introduced for SMEs producing advanced materials, components, and equipment; over 3 trillion won in low-interest loans will be provided for the semiconductor industry. In addition, mini-fabs, which closely resemble actual mass production environments, will be established to push forward the K-semiconductor technology innovation platform (Korean version of IMEC). Through this supplementary budget, two additional high-performance AI semiconductor demonstration equipment units will be introduced by the end of the year for joint use by fabless companies, and the scale of demonstration projects will be stepped up by 2.5 times. The recruitment of top semiconductor talent will be strengthened through the establishment of training and research programs for early-career postdoctoral and doctoral researchers in Korea, the launch of global joint research programs to attract and retain foreign talent, and the nationwide expansion of the semiconductor academy.   In today’s meeting, discussions were held on the following topics: 1) Strengthening fiscal investments to secure global semiconductor competitiveness, 2) Follow-up Measures for Enhancing National AI Capabilities, and 3) Biohealth Sector Response Strategies to a Changing Trade Environment. Please refer to the attached files.