Roundup: S.Korea to provide 17 bln USD fiscal stimulus after cutting economic outlook

South Korea on Tuesday announced a plan to provide at least 20 trillion won (17 billion U.S. dollars) in fiscal stimulus in the second half of this year, including a 10 trillion-won supplementary budget plan.

The plan for the second-half economic policy direction was confirmed at a meeting of economic ministers chaired by President Park Geun-hye to boost the lackluster economy amid the ongoing corporate restructuring and the British referendum to leave the European Union (EU).

About 10 trillion won would be allotted to the extra budget plan by using last year's tax surplus, estimated at 1.2 trillion won, and this year's excess tax revenue. No government bonds will be issued for the extra budget financing.

It marked the second straight year that the South Korean government forms a fiscal stimulus package as it provided 11.8 trillion won in supplementary budget in 2015 when the Middle East Respiratory Syndrome (MERS) outbreak dampened private consumption.

Additional fiscal stimulus, excluding the supplementary budget plan, worth at least 10 trillion won will be created by changing the usage of public funds, investment by state-owned enterprises and expanded policy loans.

The government expected the fiscal stimulus package to raise the economy's growth by 0.25-0.30 percentage points this year.

It came as the government cut its 2016 growth outlook to 2.8 percent from 3.1 percent forecast at the end of last year. The government's downgraded outlook was in line with the Bank of Korea (BOK)'s growth forecast of 2.8 percent, but it was higher than the state-run Korea Development Institute (KDI)'s 2.6 percent.

The International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) had put South Korea's growth forecast for 2016 at 2.7 percent.

Finance Minister Yoo Il-ho, who doubles as deputy prime minister for economic affairs, told a press conference that the ministry will submit the supplementary budget plan to the National Assembly as soon as possible to make the general public feel the effect early from the fiscal stimulus package.

The extra budget plan is expected to be submitted to the parliament on July 6 when lawmakers are set to convene an extra session. The exact size of the supplementary budget would be fixed during the session.

Supplementary budget and downgraded growth outlooks came amid the ongoing restructuring in troubled shipbuilders and shipping firms as well as worries about the Brexit, or British exit from the EU.

Yoo said that unexpected downside risks to the economy emerged such as the Brexit and the continued low prices of global crude oil, adding unexpected factors pulled down the ministry's earlier economic forecast.

The government has urged the country's top three shipbuilders, including Daewoo Shipbuilding & Marine Engineering, Hyundai Heavy Industries and Samsung Heavy Industries, to implement their self-restructuring processes like a cut in facilities to reduce oversupply and massive layoffs, which are expected to reach tens of thousands of workers when including employees in subcontractors.

President Park told the economic ministers'meeting that this year's supplementary budget plan would be focused on creating jobs for those who are put in danger of losing jobs amid the ongoing restructuring process.

The government designated the struggling shipbuilding industry as a special employment sector to expand assistance to encourage companies to retain workers, while reviewing whether to extend the period of unemployment benefits by 60 days.

Those who stay unemployed for more than six months will be provided by the government with financial assistance, while expanding a flexible work-hour system for female workers.

Meanwhile, monetary and credit policies would stand accommodative and expansionary to help stimulate the lackluster economy. The Bank of Korea (BOK) cut its benchmark interest rate by a quarter percentage point earlier this month to an all-time low of 1.25 percent. Enditem