South Korea to Unveil Aggressive Fiscal Stimulus to Counter Economic Headwinds
The government has proposed an 8.1% budget increase for 2026, backed by a record-high bond issuance, to boost growth and tackle rising welfare costs
South Korea's government is set to launch a major economic stimulus, with a "proactive fiscal policy" designed to counter global economic pressures, including potential US tariffs.
President Lee Jae-myung’s administration has proposed a 2026 annual budget of 728 trillion won, an 8.1% increase from the current year.
This significant spending plan is intended to address a number of challenges, from external trade pressures to rising welfare costs and the country's rapidly ageing population.
"This is a time when the role of proactive fiscal policy is more necessary than ever," President Lee said during a cabinet meeting. "Next year's budget proposal will act as a pump primer to address our economic challenges, driving recovery and growth through a major economic innovation."
The government plans to fund this spending spree by issuing a record 232 trillion won in bonds in 2026, according to a source from the Ministry of Finance.
The increased expenditure will focus on an "economic transition," with a strong emphasis on future-oriented sectors such as artificial intelligence (AI), semiconductors, shipbuilding, and K-culture.
The government aims to drive growth through technological investment, strengthen small and medium-sized enterprises (SMEs), and promote more balanced regional development.
In addition to economic measures, the government has proposed an 8.3% increase in defence spending, raising the total to 66.3 trillion won.
This will focus on enhancing defences against threats from North Korea, applying lessons from the conflict in Ukraine, and incorporating AI into drones and advanced weaponry.
