500 billion won cash injection to launch strategic sovereign wealth fund
Supply chain investment budget to rise from 10 billion to 200 billion won
3.6 trillion won for ultra-innovation economy project; physical AI added
The Ministry of Economy and Finance has set its budget for next year at 39.7 trillion won ($28.9 billion), a 15.7 percent increase from this year. The ministry plans to establish a strategic investment account at the Korea Investment Corporation to transform it into a comprehensive sovereign wealth fund, and will also pursue the creation of a new strategic export finance fund to support large-scale, long-term export projects.
Investment resources for building domestic and overseas production bases for key supply chain items will expand sharply, from around 10 billion won this year to around 200 billion won next year. The cross-ministry "ultra-innovation economy project" will receive mid-3 trillion won range funding to support the securing of core technologies and their demonstration and commercialization.
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According to the "2027 Budget and Fund Management Plan" released by the Ministry of Economy and Finance on Tuesday, next year's budget stands at 39.7 trillion won, up 5.4 trillion won, or 15.7 percent, from this year's main budget.
The general account budget amounts to 1.6 trillion won, with funds totaling 38.1 trillion won. The fund portion comprises the Public Fund Management Fund at 35 trillion won, the Economic Development Cooperation Fund (EDCF) at 1.9 trillion won, and the State Property Management Fund at 1.2 trillion won, among others.
The ministry placed emphasis on strategic capital and financial support to secure future growth engines. It will first establish a "strategic investment account" within the Korea Investment Corporation (KIC), expanding and restructuring it from a savings-type sovereign wealth fund into a comprehensive one. The move reflects the ministry's assessment that while a growing number of countries are using strategic sovereign wealth funds as tools for economic security and active industrial policy, the KIC is currently limited to making financial investments abroad using foreign currency.
The new strategic investment account will supply long-term patient capital to companies in strategic industries. Using government contributions as its funding base, it will pursue equity and direct investments in those companies.
Initial capital will be raised to a scale of "20 trillion won-plus" through a combination of in-kind contributions — including government-held shares in public institutions and shares received in lieu of cash — and cash injections. The government plans to secure early investment resources for the fund's launch by allocating 500 billion won in cash contributions in next year's budget.
Financial support for large-scale, long-term strategic export projects will also be strengthened. The government will pursue the creation of a new strategic export finance fund to provide loans and guarantees for projects that cannot be adequately supported under the existing policy finance framework.
Using mutual-contribution levies and other sources as funding, the government will match private capital to create sub-funds and invest in small and midsize export companies. Contingent on the relevant legislation passing the National Assembly by year-end, the budget proposal includes a 10 billion won grant to cover initial operating costs.
Investment resources for building domestic and overseas production bases for key supply chain items will expand 20-fold, from 10 billion won this year to 200 billion won next year. The government will inject 200 billion won into the Export-Import Bank of Korea, which will then contribute the funds to a supply chain stabilization fund dedicated exclusively to supply chain investment.
Given the supply chain sector's characteristics — many low-return, long-term projects — the investment resources will be composed solely of fiscal contributions. The plan calls for securing production bases for key items and diversifying import sources to create stable supply chain conditions.
The budget for the "ultra-innovation economy project," aimed at reversing the decline in potential growth, will rise 33.5 percent, from 2.68 trillion won this year to 3.58 trillion won next year. The government selects innovation projects targeting world-class products and services and provides a package of support covering technology development, workforce training, financial assistance, overseas expansion and site support, and regulatory improvement. Next year, the focus will shift to securing core technologies and advancing demonstration and commercialization so that results become visible.
Support for next-generation power semiconductors, graphene, and other key materials and components for future industries will increase from 113.8 billion won this year to 161.5 billion won next year. Funding for climate, energy and future-response areas — including next-generation solar power and next-generation power grids — will rise from 1.1 trillion won to 1.71 trillion won, while the K-content, K-food and other K-boom sectors will see their allocation grow from 1.45 trillion won to 1.65 trillion won.
On top of the existing 15 project categories, the government added ultra-precision sensors, actuators, and secondary batteries for humanoid robots — all core physical AI fields — as new projects in July. The related budget will expand from 11.6 billion won to 62 billion won.
The ministry will also move forward with a "K-AI package" project using the EDCF. As its first initiative, it will begin construction of an AI and digital technology education institution in Tanzania at a total cost of $170 million. The project involves building an advanced technology education facility operating four AI-related departments — AI, robotics, data analytics, and the Internet of Things. Next year's budget includes about 3 billion won in advance payments for detailed design work by consultants.
The budget also includes about 20 billion won in new projects, covering the establishment of a strategic economic institutional framework for building insurance infrastructure for advanced technology products and services, as well as the construction of an information system to support exports and contract wins. The newly created future-response fund will reflect 950 billion won in ministry-managed projects, including the strategic sovereign wealth fund.
The budget proposal will be submitted to the National Assembly on Thursday, after which it will go through reviews by standing committees and the Special Committee on Budget and Accounts before being finalized by a plenary vote.
y2k@heraldcorp.com
