U.S. Markets closed

South Korea’s Largest-Ever Extra Budget Approved by Parliament

·1 min read

(Bloomberg) -- South Korea passed a record extra budget in what is likely to be the last round of such fiscal support to offset the economic impact of coronavirus, given escalating inflationary pressure is now the key challenge.

Most Read from Bloomberg

Parliament late Sunday approved the proposed package worth 62-trillion won ($49.3 billion), an increase from the 59.4 trillion won originally proposed by the Finance Ministry.

Finance Minister Choo Kyung-ho said this month that the extra budget would be the last of its kind this year unless the virus was to flare dramatically once more. The spending was envisioned in early 2022 when the economy showed clear signs of slowing in response to the spread of the omicron variant.

The number of cases has since dwindled and the government has relaxed regulations on public activity in a bid to shore up consumption. Inflation has now emerged as a bigger threat to the economy, prompting the Bank of Korea to hike its key interest rate at a faster pace than previously expected.

The central bank last week raised its seven-day repurchase rate by a quarter percentage point to 1.75%, in the fifth hike since last summer.

The latest extra budget includes some subsidies for people vulnerable to faster gains in consumer prices, though most of it is geared toward small- and medium-sized businesses hurt by omicron’s impact on consumption.

South Korea has relied on a series of extra budgets to soften the blow from the pandemic. President Yoon Suk Yeol, who took office on May 10, has pledged to spur economic growth driven by the private sector.

Most Read from Bloomberg Businessweek

©2022 Bloomberg L.P.