Korea's Extra Budget to Address Oil Price Shock

Korea's Extra Budget to Address Oil Price Shock

Korea is preparing an emergency supplementary budget to counter an oil price shock triggered by the conflict in the Middle East. This move aims to prevent rising energy costs and financial market volatility from weakening domestic demand.

President Lee Jae Myung has ordered officials to quickly draft this budget, with the government working through the weekend to collect proposals from various ministries. The supplementary budget is expected to range between 10 trillion won and 20 trillion won.

While the final size hasn't been decided, policymakers and analysts anticipate it will help stabilize economic sentiment amid uncertainty. The Korea Development Institute has warned that higher oil prices could become a significant downside risk for the economy.

Financial market turbulence is also a concern, potentially affecting domestic demand and asset prices. The University of Michigan's consumer sentiment index fell in March, reflecting some impact on domestic sentiment.

The government plans to use the supplementary budget to support vulnerable households, small businesses, and transport firms affected by rising oil prices. Measures may include energy vouchers and assistance for those facing higher fuel expenses.

The Bank of Korea estimates that a 15 trillion won budget could raise economic growth by about 0.1 percentage point. The impact of the conflict will influence decisions on the scale of fiscal stimulus.

Policymakers are prioritizing the timely implementation of measures to stabilize livelihoods and the economy.