S. Korea to Hike Fiscal Spending by $10 Billion Next Year

South Korea plans to increase government spending by 14 trillion won ($10.76 billion) next year as part of efforts to stimulate the slumping economy and help low-income households tide over the current financial turmoil.

The figure includes a 10 trillion won expansion in budget spending, 4 trillion won in tax incentives and other economic stimulus measures, Yonhap News reported quoting the Finance Ministry.

The ministry expects South Korea's economy to grow around 4 percent next year on the back of these stimulus measures, despite the latest financial plight and growing jitters over a global economic slowdown.

Earlier this month, the ministry sent a 274-trillion won budget plan for 2009 to the National Assembly for approval on the assumption that next year's growth will be around 5 percent.

"The ongoing global financial turmoil originated from the U.S. subprime mortgage credit crunch is causing concerns over the global economic downturn. Financial market uncertainties have aggravated and are exerting a knock-on impact on the real economy," Finance Minister Kang Man-soo told reporters in a press briefing.

"(Against this backdrop), the economy may expand just around 3 percent next year and it will be difficult to achieve the growth if global economic conditions further worsen," he added, emphasizing the need for the stimulus package.

The decision was made at a policy consultation meeting between the government and the ruling party Sunday night, officials said. It is also part of a wide range of economic stimulus measures unveiled in the joint press briefing attended by key economic ministers.

In a bid to revitalize the faltering construction sector, the government said that it will remove most zones designated as speculation-prone areas where home-backed lending is limited to stem a surge in housing prices. Speculation-prone designated zones will be limited to three areas in southern Seoul in the metropolitan area.

South Korea's construction sector has been under pressure from slumping trading of houses amid anemic market sentiment. With some builders on the verge of bankruptcy, the government has been seeking to boost the construction sector, which accounted for around 20 percent of the nation's gross domestic product.

On Oct. 21, the Finance Ministry said that it will spend around 5 trillion won to buy land and unsold houses from builders as part of efforts to help cash-strapped local builders.

The latest stimulus package comes as fears spread that South Korea's economy may slip into a deep slowdown.

South Korea, in its bid to stabilize the financial markets, signed a $300 billion currency swap deal with the United States last week. The Korean currency has lost 28 percent against the greenback so far this year and the benchmark stock index KOSPI nearly halved since its peak late last year.

The government recently announced that it will guarantee banks' external debts for three years and inject more liquidity to help ease a liquidity crunch.