South Korea Plans Defense Budget Reduction in Wake of COVID-19 Pandemic

As South Korea seeks to mitigate economic fallout and social disruption in the wake of the novel coronavirus (COVID-19) pandemic, the government is looking for areas with which to shift funds for its COVID-19 response program. On April 16, the South Korean Finance Ministry unveiled a second extra budget aimed at cushioning the economic downturn. In order to fund the plan, the Finance Ministry will revise the current-year national budget rather than look to issue bonds.

One of the areas hit the hardest under the revised budget plans is defense. Roughly KRW900 billion ($733 million) will be slashed from the original 2020 outlay. This will shrink the 2020 defense earmark down from KRW50.15 trillion initially earmarked to an allocation of KRW49.25 trillion ($40.335 billion), a 1.8%  overall reduction. The bulk of the cuts will come from the arms procurement portion of expenses at KRW712 billion, with the rest from operations expenditures.

How this changes former spending plans laid out by South Korea’s Defense Ministry remains to be seen. The country’s economy is forecast to shrink by 1.2% over 2020 per the latest International Monetary Fund (IMF) projections. While not a sharp contraction when juxtaposed to advanced economies in the West, this nonetheless is already forcing budgetary revisions. Though a rebound for 2021 is not out of the question, it will be vulnerable to second-wave outbreaks of COVID-19 and the health of the rest of the global economy.

Under the Defense Ministry five-year spending plan covering the years 2020 to 2024, annual defense expenditures were planned to increase by about 7.1% for a total spend of KRW290.5 trillion ($240 billion) during this stretch. That would be an increase from the five-year budgetary blueprint unveiled on January 11, 2019, which outlined an average annual hike of 7.5% over the fiscal period between 2019 and 2023. Across those five years South Korea intended to invest KRW270.7 trillion ($227 billion), or roughly KRW54.14 ($45.4 billion) per annum.

Now all such plans will need to be revisited.

Nonetheless, defense officials remain optimistic that – though payment schedules have been pushed back by a year – deliveries of key platforms, including F-35A combat aircraft and Aegis-equipped KDX-3 destroyers, will remain on schedule.

Image – Nicolas Raymond

About Daniel Darling

Dan Darling is Forecast International’s International Military Markets Group Leader. Specializing in history and political science with a background in finance and economics, Dan provides insight into the military markets of both the Europe and the Asia, Australia and Pacific Rim regions. Dan's work has been cited in Aerospace and Defense News, Aerotech News and Review, Defense Talk, Global Defense Review, and Small Wars Journal, among others, and by the NATO Parliamentary Assembly. In addition, Dan has been quoted in Arabian Business, the Financial Times, Flight International, The National, Bloomberg and National Defense Magazine. He has also contributed commentary to Defense News and appeared as a guest on the online radio show Midrats and on The Media Line. As editor of International Military Markets, Europe and International Military Markets, Asia, Australia & Pacific Rim, Dan brings a wealth of expertise on the political and economic forces shaping these markets.

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