"Economic Growth Rate Could Rise by Up to 0.77 Percentage Points with Second Supplementary Budget"

Kim Jin Wook, Citi Economist, Issues Report
Assumes 50 Trillion Won in Fiscal Spending Including First Extra Budget
"Government Bond Issuance Likely for Financing"
High Possibility of Transferring Ministry of Economy and Finance's Five Core Functions
Accelerating Corporate Governance Reform with Commercial Act Amendments

Since President Lee Jae Myung took office, discussions have been underway regarding the second supplementary budget (extra budget), and analysts suggest that if the supplementary budget is implemented, it will have a positive impact on economic growth. There are also expectations that President Lee will swiftly push forward with his campaign pledges, such as reorganizing the Ministry of Economy and Finance and reforming corporate governance.

According to the financial sector on June 10, Kim Jin Wook, Citi economist, recently stated in "Frequently Asked Questions from Investors about the Lee Jae Myung Administration," "Including the first supplementary budget of approximately 14 trillion won implemented last month, the cumulative size of the extra budgets could reach up to 50 trillion won." He added, "Assuming fiscal spending of 50 trillion won, the economic growth rate could be raised by 0.38 percentage points to 0.77 percentage points over the next four quarters."

Kim estimated that the size of the second supplementary budget would be between 20 trillion and 35 trillion won. He cited two reasons: first, President Lee Jae Myung explicitly stated during his presidential campaign that a second supplementary budget of 35 trillion won would be necessary to boost domestic demand; second, Jin Sung Joon, chairman of the Policy Committee of the Democratic Party, said on June 6, "The basic position is that an additional 20 to 21 trillion won is needed, but as our economic situation worsens, the amount could increase further depending on the president's determination and the government's fiscal capacity." Kim predicted that the second supplementary budget bill would pass the National Assembly and be executed by the end of next month or early August. He also expected that amendments to the tax law, the budget proposal for next year, and the fiscal management plan would be announced at the end of August.

President Lee Jae Myung is clapping at the 21st Presidential Inauguration Commemorative Luncheon held at Sarangjae, the National Assembly in Yeouido, Seoul, on June 4, 2025. Photo by Kim Hyun Min

He further analyzed that the second supplementary budget would be financed through the issuance of government bonds. He explained, "Since there is limited room to collect more taxes or use public funds, most of this supplementary budget will likely be financed through additional government bond issuance." As a result, he projected that the total government bond issuance this year would increase to between 227.1 trillion and 242.1 trillion won. This represents an increase of 57.6 trillion to 72.6 trillion won compared to the average annual issuance of 169.5 trillion won from 2020 to last year.

Kim also responded to investor questions about the potential reorganization of the Ministry of Economy and Finance and financial authorities. He predicted that the Lee Jae Myung administration would distribute the ministry's five major functions across several agencies. Specifically, he forecasted that budget planning would be transferred to a newly established Budget Office, public institution management would be handled by the Public Institution Operations Committee, and a newly created Treasury Department would oversee economic, tax, and financial policies. He further predicted that the existing Financial Services Commission and Financial Supervisory Service would be merged into a Financial Supervisory Commission, with the domestic financial policy functions of the FSC transferred to the Treasury Department, and the new commission focusing on supervision and consumer protection.

Regarding corporate governance reform, Kim anticipated that amendments to the Commercial Act would be implemented within this month. He noted that on June 5, the ruling Democratic Party introduced a bill to amend the Commercial Act, which includes expanding directors' fiduciary duty to shareholders. He added, "This was done the day after the inauguration, and President Lee mentioned that the amendment would be processed within two to three weeks of taking office. The bill is stipulated to take effect immediately upon promulgation, with no grace period." In fact, the Democratic Party is reportedly planning to pass the bill at the National Assembly plenary session on June 12.