Due to COVID-19, South Korea Plans Fresh Cut to 2020 Defense Budget

The South Korean government plans to trim around KRW300 billion ($245 million) from the country’s 2020 defense allocation in order to bolster its economic relief effort in light of the ongoing COVID-19 pandemic. This follows an earlier defense budget cut  in April that was first reported at KRW900 billion ($736 million) but ultimately amounted to KRW1.47 trillion ($1.202 billion). That reduction was announced back on April 16, when the South Korean Finance Ministry unveiled a second extra budget aimed at cushioning the economic downturn stemming from COVID-19.

Overall, the earmark for defense will fall from the originally designated KRW50.15 trillion ($41 billion) to KRW48.38 trillion ($39.58 billion) as a result of the two spending reductions. This amounts to a 3.5 percent in-year shrinkage of the initial defense budget.

The largest portion of the defense budget to be cut pertains to force improvement (i.e., modernization), with the remainder derived from force maintenance (operations and personnel costs).

South Korea faces a year-long recession, as the pandemic has threatened the economy with its biggest contraction since 2008, when the global financial crisis erupted. The economy is expected to shrink by around 1.2 percent for 2020.

The government is undertaking multiple fiscal spending plans and issuing state bonds as a means to cushion the economic fallout, and trimming defense spending and shifting monies toward this initiative are seen as mitigating some of the residual fiscal liability.

As noted by Forecast International earlier in April when the first wave of defense budget cuts was reported, the South Korean Defense Ministry’s five-year spending plan (covering the years 2020 through 2024) anticipated an increase in funding over this period of about 7.1 percent, resulting in 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 percent 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. But a KRW70.6 billion ($58 million) planned purchase of ship-to-air missiles from the U.S. will be stripped from the 2020 budget, according to Korean media. This likely involves a number of Raytheon Standard Missile 2 (SM-2) medium-range SM-2MR Block IIIB variants intended to equip the Republic of Korea Navy’s second batch of three KDX-3 (Sejong Daewang class) guided missile destroyers.

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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