(Bloomberg) -- South Korean authorities seek to bump up government spending next year to support an economy that’s expected to cool, pledging steps that include greater financial support for semiconductors and other growing sectors such as K-pop entertainment.
The government plans 677.4 trillion won ($512 billion) of outlays in 2025 in what would be a 3.2% increase from this year’s budget, the Finance Ministry said in a statement on Tuesday. That would be a faster pace of increase than this year, when the budget rose by 2.8%.
The proposal to be submitted to parliament includes 6.2 trillion won in low-interest loans to companies developing semiconductors, batteries and biotechnology, the ministry said.
A separate 2.9 trillion fund would be set up to support K-pop concerts and content creation, advance nuclear-energy projects including small modular reactors and provide guarantees for arms exports, it said. Those industries have emerged more prominently as drivers of the nation’s export-oriented economy in recent years.
Trade is a pillar of South Korea’s economy as the nation lacks natural resources and relies on global supply chains for basic necessities and raw materials. Chips have been leading an export rally this year and authorities expect momentum to continue into next year, but they say economic growth could still slow to 2.2%, falling short of a 2024 pace of 2.6%.
The Bank of Korea meanwhile sees GDP growth slowing to 2.1% next year from 2.4% this year.
South Korea’s aging demographics are another factor influencing the budget process, as the trend weighs on consumption, investment and economic dynamism. President Yoon Suk Yeol plans to form a new ministry dedicated to boosting the country’s fertility rates, which have sunk to the world’s lowest. He’s already named an advisor to address the dearth of babies.
The government seeks to raise its total spending on parental-leave allowances to 3.4 trillion won from 1.9 trillion won, raising the ceiling for each participating parent to 2.5 million won a month from 1.5 million, the ministry said. The government also plans to loosen mortgage regulations for couples having a baby by lowering the bar on income levels.
On national security, the government plans to beef up its spending on advanced weaponry such as drones, anti-missile defense systems and next-generation fighter jets to 18 trillion won from 17.6 trillion won, it said. The monthly compensation for a soldier in compulsory service is also projected to increase to 2.1 million won from 1.7 million won this year.
South Korea has one of the smallest government debt loads in the developed world. Its debt-to-gross domestic product ratio would edge up to 48.3% next year from 47.4% this year if the budget proposal is approved, according to the ministry. The government sees the ratio reaching around 50.5% by 2028.
The average debt-to-GDP ratio in East Asia stood at 109.6% in 2024, according to the International Monetary Fund, with Japan registering the highest at 254.6%.
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