Korea mulls extra budget

The South Korean government will soon review supplementary budgeting to turn the faltering economy around, experts said Sunday.

The Korean economy has faced a number of difficulties to tackle, including sluggish domestic consumption and falling exports for the first half of this year.

To make things worse, the recent outbreak of the Middle East respiratory syndrome is casting cold water on the economy.

Witnessing worsening economic conditions, economists said an extra shot to the budget is necessary for a quick fix to the economy slowdown. They expect some 10 trillion won ($8.9 billion) worth of stimulus could add at least 0.3 percentage points to the country’s economic growth.

“Additional budgeting will kick-start the economy as it has a direct impact on economic stimulation,” said Lee Jun-hyup, a research fellow at Hyundai Research Institute.

Concerns are growing after foreign investment banks such as Morgan Stanley projected the country’s annual economic growth to fall by 0.15 percentage points even if the MERS outbreak fizzles out within one month.

In April, the Bank of Korea lowered the country’s growth outlook to 3.1 percent from a previous estimate of 3.4 percent.

Experts said that it is time for the government to take action for fiscal easing through supplementing the budget, following monetary easing efforts made by Korea‘s central bank through a rate cut last week to address the downside risks associated with MERS.

“The issue of the necessity of additional budgeting was raised even before the MERS crisis as the country faced a slowdown in growth in the fourth quarter last year. Some 15 trillion won is needed to normalize the economy,” NH Investment & Securities researcher Kim Byung-yeon said.

On June 11, the BOK announced it would cut the benchmark rate by a quarter percentage point to a new record low of 1.5 percent, citing slowing exports and threats to business from MERS as central to the decision.

The Ministry of Strategy and Finance hasn’t ruled out the possibility of adding to the budget, but is taking a cautious approach.

“We will draw up the second-half economic policy guidelines at the end of June after reviewing the current economic situation and the overall impact of MERS,” the ministry said.

According to data from the ministry, sales at department stores fell by 16.5 percent in the first week of June compared with the previous year and retail outlets saw a 3.4 percent dip in sales during the same period.

For the past 10 years, South Korea has earmarked a shot to the budget five times with the intention of reviving slowing growth or in the case of an unexpected catastrophe.

According to a report by the Korea Development Institute, a 17.3 trillion won supplement to the budget in 2013 pulled the economic growth rate up by 0.3 percentage points.

By Park Han-na (hnaprk@heraldcorp.com)