By Jihoon Lee
SEOUL, March 31 (Reuters) – South Korea proposed a supplementary government budget of $17.3 billion on Tuesday to support consumers and companies hit by the war in the Middle East.
A surge in oil prices sparked by the U.S.-Israeli war on Iran has raised growth and inflation risks for Asia’s fourth-largest economy, which is also the world’s fourth-largest importer of oil, with 70% of its purchases coming from the Middle East.
It is the second extra budget in less than a year under the administration of President Lee Jae Myung, who has pledged to pursue an expansionary fiscal policy to spur economic growth since taking office last June.
“Beyond economic data, difficulties and anxiety felt by our people and companies are deepening more than ever,” said Budget Minister Park Hong-keun. “A pre-emptive response is more important than anything else.”
The spending plan of 26.2 trillion won ($17.3 billion) includes 10.1 trillion won of measures responding to high oil prices, 2.8 trillion won of support for low-income earners and young people, and 2.6 trillion won for companies affected by the Middle East conflict, according to the budget ministry.
Among major measures, the government plans to spend 5.0 trillion won to make up for oil refiners’ losses incurred by nationwide price caps introduced this month for the first time in nearly 30 years.
It will also allocate 4.8 trillion won to provide financial support in the form of consumer vouchers worth 100,000 won to 600,000 won per person depending on income and region, excluding those in the top 30% nationwide by income.
For the extra budget, the ministry said it would utilise excess tax revenue from a boom in chip exports and a stock market rally, without issuing any treasury bonds. The spending plan also includes treasury bond repayment of 1 trillion won.
The extra budget will raise total government spending for 2026 to 752.1 trillion won, up 11.8% from last year, boosting economic growth by 0.2 percentage points. Before the war erupted, the government planned to spend 727.9 trillion won.
Still, this year’s fiscal deficit will narrow to 3.8% of gross domestic product, down from 3.9% previously estimated and 4.2% last year, the ministry said. The debt-to-GDP ratio is estimated at 50.6%, compared with 51.6% seen earlier and 49.1% in 2025.
Last month – just days before the U.S. and Israel launched their attacks on Iran on February 28 – the Bank of Korea signalled it would not adjust monetary policy at least until August. It also raised its 2026 growth forecast to 2.0% from 1.8%. In 2025, the economy grew 1.0%.
Last year, Lee’s administration drafted an extra budget of 31.8 trillion won one month into his term that included his flagship voucher handout programme to boost domestic demand that dropped in the wake of his predecessor Yoon Suk Yeol’s failed attempt to impose martial law in December 2024.
($1 = 1,515.4800 won)
(Reporting by Jihoon Lee; Editing by Christian Schmollinger and Kate Mayberry)
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