Government Leaning Toward the '4th Supplementary Budget'

President Moon Suggests Possibility
Ministry of Economy and Finance Left No Choice but to Consider All Measures

President Moon Jae-in is presiding over a video Cabinet meeting at the Yeomin Building of the Blue House on the morning of the 25th. [Image source=Yonhap News]

[Sejong=Asia Economy Reporter Joo Sang-don] A change in the government’s stance, which had previously drawn a line on the formation of the 4th supplementary budget, is being detected. On the 25th, President Moon Jae-in hinted at the possibility of a 4th supplementary budget by saying, "Please check if there are any shortcomings in the previous financial support," and the Ministry of Economy and Finance is left with no choice but to consider all measures, including this.

On the 26th, a Ministry of Economy and Finance official said regarding the formation of the 4th supplementary budget, "For now, the focus should be on quarantine," but added, "It is necessary to make a judgment while observing the trend of COVID-19 spread." Although there was no direct mention of the 4th supplementary budget, it can be interpreted as meaning that if the spread continues, it could be discussed positively.

So far, the Ministry of Economy and Finance has shown a negative stance toward the 4th supplementary budget. Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki limited his remarks to damage recovery from heavy rains but stated on his Facebook on the 19th, "If the government judges that the 4th supplementary budget is necessary due to a lack of funds, it will request cooperation from the National Assembly, which holds the final authority to approve the supplementary budget. However, the government will make every effort to avoid such a request."

However, a few days later, the ruling party argued that the formation of the 4th supplementary budget was necessary to provide the 2nd emergency disaster relief fund. On the 21st, Kim Tae-nyeon, floor leader of the Democratic Party of Korea, said at the Supreme Council meeting, "As COVID-19 rapidly spreads, the economy seems likely to freeze again for about two months," adding, "It is necessary to assess and analyze the economic situation at the policy committee level. Let's also consider the 2nd disaster relief fund." This was because the daily confirmed COVID-19 cases increased from 166 on the 15th (as of midnight) to 324 on the 21st. On the 23rd, new confirmed cases rose to 397.

President Moon also made a suggestive statement. Presiding over the Cabinet meeting the previous day, President Moon said, "We need to supplement or add to the existing emergency economic measures. Please reinforce the economic policy direction for the second half of the year according to the changed situation," emphasizing, "Although financial support through three supplementary budgets and large-scale financial support have been provided, please urgently check if there are any shortcomings."

In response, the Ministry of Economy and Finance has begun a comprehensive review of the economic policy direction announced in June this year. They are evaluating the effects of the COVID-19 quarantine budget and damage support package presented through the economic policy direction. Based on these results, they plan to decide the scope of additional support measures, but if the COVID-19 spread does not subside, they will have no choice but to proceed with additional fiscal spending. Ultimately, the 4th supplementary budget to secure funding becomes inevitable.

However, there is also considerable caution regarding the 4th supplementary budget. This is because the national debt-to-GDP ratio rose sharply from 39.8% at the beginning of this year to 43.5% after the 3rd supplementary budget, an increase of 3.7 percentage points. Professor Sung Tae-yoon of Yonsei University’s Department of Economics said, "Additional government fiscal input is inevitable due to the resurgence of COVID-19," but added, "Since the debt ratio is already rising rapidly, the government should minimize fiscal burden by utilizing contingency funds, and the 4th supplementary budget should be used as a last resort."

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