South Korea Unveils Ambitious Budget Plan to Boost AI-Led Economic Growth

South Korea to boost budget spending in bid to spur AI-led growth

SEOUL, Aug 29 (Reuters) - South Korea's government plans to raise budget spending for next year by the steepest pace in four years as the country's new president seeks to spur economic growth through a policy of boosting investment in artificial intelligence. In its annual spending plan released on Friday, the finance ministry set total government expenditure for 2026 at 728.0 trillion won ($524.44 billion). That is up 8.1% from 2025, outstripping the 2.5% increase this year and marking the biggest jump since 2022, excluding the two supplementary budgets introduced so far this year. President Lee Jae Myung, who took office on June 4, has vowed expansionary fiscal policy to boost growth, in contrast to the three years of the administration of his conservative predecessor Yoon Suk Yeol who prioritised fiscal sustainability. Last week, the government unveiled economic policy plans with a top priority on AI investment, as it slashed growth projections amid downward pressure from U.S. tariffs and a long-term population shock. "Fiscal policy needs to prime the pump to grow the spark of recovery," Finance Minister Koo Yun-cheol said. Asia's fourth-largest economy grew in the second quarter at the fastest pace in more than a year, on robust technology exports and a rebound in consumer spending, but faces headwinds from higher U.S. tariffs introduced this month. The country's central bank held interest rates steady for a second straight review on Thursday but flagged further easing to counter the hit to growth from U.S. tariffs. South Korea's fiscal deficit will widen to 4.0% of gross domestic product in 2026, sharply up from 2.8% in 2025, as tax revenue is projected to only rise 3.5% to 674.2 trillion won, the ministry said. The debt-to-GDP ratio is estimated to rise to 51.6% from 48.1%. After next year, the government plans to slow expenditure growth to maintain it at an annual average rate of 5.5% for 2025-2029. It sees the debt-to-GDP ratio rising to 58.0% by 2029. Spending on social welfare will be raised by 8.2% to 269.1 trillion won in 2026, with more government projects to try to boost the country's flagging birthrate - the lowest in the world. Spending on research will be raised by a record 19.3% to 35.3 trillion won for AI investments and industrial policies by 14.7% to 32.3 trillion won to support tariff-hit exporters. Spending on the cultural industry will also rise 8.8% to 9.6 trillion won to further grow a sector riding a global boom. Amid growing U.S. pressure to lift defence spending, it will be raised by 8.2% to 66.3 trillion won - equivalent to around 2.4% of GDP. The government will issue 232 trillion won of treasury bonds in 2026, with the net increase in bonds projected at 115.7 trillion won and planned issuance to finance the fiscal deficit seen at 110 trillion won. The issuance ceiling of dollar-denominated and won-denominated foreign exchange stabilisation bonds will be set at $1.4 billion and 13.7 trillion won, respectively. The budget plan will be submitted to the National Assembly, currently controlled by the ruling Democratic Party, for approval. ($1 = 1,388.1500 won) Reporting by Jihoon Lee Editing by Ed Davies Our Standards: The Thomson Reuters Trust Principles., opens new tab

South Korea Plans Sharp Budget Increase to Support Economy

South Korea's new left-leaning government plans a sizable spending increase next year to support an economic recovery. The Ministry of Economy and Finance on Friday proposed a 2026 budget of 728.0 trillion won, equivalent to $525.42 billion, up 8.1% from this year. That compares with a 2.5% rise to 673.3 trillion won in 2025. President Lee Jae-myung of the liberal Democratic Party, inaugurated in early June, has eased the prudent fiscal stance of his conservative predecessor, who was ousted in April over a short-lived attempt to declare martial law in December 2024. The Lee administration has since rolled out more than $20 billion in fiscal stimulus, including an extra budget and cash handouts, to spur private consumption. The government has emphasized the role of fiscal policy in revitalizing growth and household livelihoods. A shrinking workforce, weak investment and stagnant productivity are weighing on South Korea's growth potential, Finance Minister Koo Yoon-cheol told a cabinet meeting Friday. Swift extra-budget spending is helping reverse the downturn, he added. The government budget bill will be submitted to the legislature next week for approval. The 2026 proposal includes sharply higher outlays to build artificial-intelligence infrastructure and to fund research and development in semiconductors and other high-tech industries. It sets aside significant financial aid and other support for companies hit by higher U.S. tariffs. Public health, social welfare and employment programs would also see substantial increases. The ministry plans to issue new debt to help finance the expanded budget spending amid a shortfall in tax revenues. It expects the national debt-to-gross domestic product to remain at the upper 50% range in the coming years. South Korea's national debt is projected to rise to 51.6% of GDP in 2026 from 49.1% this year, the ministry said. The government's fiscal deficit is forecast to narrow to 4.0% of GDP in 2026 from 4.2% this year, it said.

South Korea to boost budget spending in bid to spur AI-led growth

SEOUL (Reuters) -South Korea's government plans to raise budget spending for next year by the steepest pace in four years as the country's new president seeks to spur economic growth through a policy of boosting investment in artificial intelligence. In its annual spending plan released on Friday, the finance ministry set total government expenditure for 2026 at 728.0 trillion won ($524.44 billion). That is up 8.1% from 2025, outstripping the 2.5% increase this year and marking the biggest jump since 2022, excluding the two supplementary budgets introduced so far this year. President Lee Jae Myung, who took office on June 4, has vowed expansionary fiscal policy to boost growth, in contrast to the three years of the administration of his conservative predecessor Yoon Suk Yeol who prioritised fiscal sustainability. Last week, the government unveiled economic policy plans with a top priority on AI investment, as it slashed growth projections amid downward pressure from U.S. tariffs and a long-term population shock. "Fiscal policy needs to prime the pump to grow the spark of recovery," Finance Minister Koo Yun-cheol said. Asia's fourth-largest economy grew in the second quarter at the fastest pace in more than a year, on robust technology exports and a rebound in consumer spending, but faces headwinds from higher U.S. tariffs introduced this month. The country's central bank held interest rates steady for a second straight review on Thursday but flagged further easing to counter the hit to growth from U.S. tariffs. South Korea's fiscal deficit will widen to 4.0% of gross domestic product in 2026, sharply up from 2.8% in 2025, as tax revenue is projected to only rise 3.5% to 674.2 trillion won, the ministry said. The debt-to-GDP ratio is estimated to rise to 51.6% from 48.1%. After next year, the government plans to slow expenditure growth to maintain it at an annual average rate of 5.5% for 2025-2029. It sees the debt-to-GDP ratio rising to 58.0% by 2029. Spending on social welfare will be raised by 8.2% to 269.1 trillion won in 2026, with more government projects to try to boost the country's flagging birthrate - the lowest in the world. Spending on research will be raised by a record 19.3% to 35.3 trillion won for AI investments and industrial policies by 14.7% to 32.3 trillion won to support tariff-hit exporters. Spending on the cultural industry will also rise 8.8% to 9.6 trillion won to further grow a sector riding a global boom. Amid growing U.S. pressure to lift defence spending, it will be raised by 8.2% to 66.3 trillion won - equivalent to around 2.4% of GDP. The government will issue 232 trillion won of treasury bonds in 2026, with the net increase in bonds projected at 115.7 trillion won and planned issuance to finance the fiscal deficit seen at 110 trillion won. The issuance ceiling of dollar-denominated and won-denominated foreign exchange stabilisation bonds will be set at $1.4 billion and 13.7 trillion won, respectively. The budget plan will be submitted to the National Assembly, currently controlled by the ruling Democratic Party, for approval.