Lee Gyu-lee is a business writer at The Korea Times, focusing primarily on IT & telecommunications, the Ministry of Trade, Industry and Energy and KOTRA. Prior to this, she has covered a wide range of cultural news, from film, television and K-pop to lifestyle and fashion.
Gov't AI initiative faces financing questions
President Lee Jae Myung speaks during during a public policy briefing hosted by the State Affairs Planning Committee at Cheong Wa Dae in Seoul, Wednesday. Yonhap
By Lee Gyu-lee
President Lee Jae Myung unveiled an ambitious plan to spend 210 trillion won ($151.11 billion) for its five-year policy agenda, which includes a package of technology and industry initiatives aimed at making Korea one of the world's top three powerhouses in the global artificial intelligence (AI) industry.
However, questions loom over how these transformative ambitions will be financed. With the country's towering national debt, concerns are growing that further stretching the nation's finances to support the AI policy could seriously undermine the country’s fiscal prudence.
The State Affairs Planning Committee on Wednesday announced the Lee administration's economic policy plans, highlighted by its goal of becoming the world’s top three AI powerhouses.
As part of this goal, the government has proposed an "AI energy highway" project, which will secure over 50,000 graphics processing units (GPUs), set up advanced data and electric infrastructures across the nation, develop next-generation core AI technologies and nurture specialized talent.
However, it remains uncertain whether the proposals can live up to the hype.
Including 25 trillion won for AI-related projects, the government has earmarked a total national budget of 210 trillion won for the five-year agenda.
The government claims the agenda would be funded without additional fiscal burdens by finding 116 trillion won through spending cuts and 94 trillion won through increased revenue. However, experts say this is unrealistic without increasing the government's tax revenue, especially when the administration has already introduced massive stimulus packages.
Complicating matters further, Korea’s fiscal situation has worsened significantly with national debt surging by 120 trillion won to exceed 1,300 trillion won over the past year. The budget deficit has reached 4.2 percent of gross domestic product (GDP), making Korea the only OECD country to surpass the 3 percent benchmark for six consecutive years.
"It’s really difficult to find a way to finance those projects without increasing the national debt,” a Seoul-based economics professor said on condition of anonymity.
“While the AI-related portion may not be considered overwhelmingly large, the rest of the economic agenda — such as safety, demographic measures and balanced regional growth — is somewhat indispensable, so there is concern that AI could be sidelined if funding falls short.”
A monitor shows rising electricity demand at the Korea Electric Power Corp.'s Seoul headquarters in Jung District, Seoul, July 9. Yonhap
The situation is fueling speculation that the government may use the state utility, Korea Electric Power Corp. (KEPCO), to cover the insufficient funds by raising utility rates for the first time in two years.
KEPCO reported a strong operating rebound in the first half of 2025, posting revenue of 46.17 trillion and an operating profit of 5.89 trillion won. This marks a 5.5 percent and 131 percent year-on-year increase, respectively.
However, despite these positive earnings results, KEPCO remains saddled with nearly 29 trillion in accumulated deficits since 2021, calling for further improvements.
Since 2023, the company has frozen household electricity rates to help curb inflation, leaving the possibility of raising those rates a viable option for a turnaround in performance.
The government’s need to secure the funds for its “energy highway” project is also contributing to the likelihood for an electricity rate hike.
The plan aims to use foster innovation in AI-driven power systems, energy storage technology and exporting next-generation climate-related technology.
Without an increase in electricity prices, KEPCO will be forced to depend on further bond issues, which are already approaching legal limits, to fund its obligations.
However, as consumer prices continue to rise — with a 2 percent year-on-year increase rate for two consecutive months — any increase in utility rates remains a highly sensitive issue.