S. Korea approves 10.5 bln-USD extra budget to boost economy

South Korea on Friday finalized supplementary budget plan for the second half at 11.8 trillion won (10.5 billion U.S. dollars) to boost the lackluster economy caused by sluggish exports, a long spell of drought and the outbreak of Middle East Respiratory Syndrome (MERS).

A total of 5.6 trillion won was earmarked for the expected lack of tax revenue caused by economic slowdown, and 6.2 trillion won was allocated to counter the negative effect of the MERS outbreak and dry weather by spending more fiscal funds, according to the Ministry of Strategy and Finance.

The extra budget plan was approved at the Cabinet meeting to submit it to the National Assembly for approval on July 6.

The 11.8 trillion won extra budget would be raised mainly by issuing government bonds worth 9.6 trillion won. To minimize the possible negative effect on the bond market, three- and five-year treasuries would be sold as those are less volatile.

The planned sales would increase the country's total treasury issuance this year from 102.7 trillion won to 112.3 trillion won.

The remaining extra budget would be met with the Bank of Korea' s 0.7 trillion won surplus capital and 1.5 trillion won of public funds.

The fiscal spending plan came as the MERS outbreak hit hardest the overall industrial activity, especially tourism and service industries, as consumers refrained from outside activity and consumption for infection fears.

The long spell of dry weather sharply raised prices of farm goods, especially vegetables, and damaged profits of farmers.

The country's exports declined for six straight months through June, boosting worries about the economic slump as exports account for about half of the economy.

In addition to the extra budget, 9.9 trillion won would be spent in the second half by expanding financial support in the form of loans to exporters, investment by public corporations and spending by public funds.

The ministry expected the fiscal spending plans to lift the economic growth rate by 0.3 percentage points in 2015 and 0.4 percentage points in 2016.