South Korea Proposes Record 820.9 Trillion Won in 2027 Spending, With AI at the Top of Its Priorities

Key Facts

South Korea’s government approved a 2027 budget proposal totaling 820.9 trillion won, up 12.8% from this year’s budget, according to the Ministry of Planning and Budget. The proposal puts funding for artificial intelligence and major projects at the top of its priorities, allocating a combined 21.3 trillion won, up 97.2% from the previous year. The government has sent the budget into the legislative process, so final approval still depends on parliament. The fiscal expansion comes as semiconductor exports surge on demand for AI infrastructure. The plan also coincides with slower growth in factory activity in October, though it remained in expansion territory.

The government expects total revenue of 880.8 trillion won in 2027, including 584.4 trillion won in tax revenue, according to the Ministry of Planning and Budget. The ministry attributed the expected increase in tax revenue to higher corporate and income taxes as the semiconductor industry booms. This reflects the reliance of some fiscal projections on the sector’s continued strength in supporting exports and revenue. Meanwhile, the government expects the debt-to-GDP ratio to fall to 48.3% in 2027 from 51.6% in 2026. It estimated the decline at 3.3 percentage points, according to its budget statement. The plan thus combines announced spending increases with expected improvements in debt and revenue indicators.

In details of technology spending, the Ministry of Science and ICT allocated 9.4 trillion won for AI transformation in 2027, up 84.3% from 2026. The amount represents 57% of the government’s total AI budget, according to the ministry. Among its components is 4.7 trillion won to support development of a domestic AI model targeting performance among the world’s best. The ministry said the support would focus on providing 10,000 graphics processing units, along with the data and talent needed to develop the model. The project also includes support for computing resources, data and human capabilities, according to the ministry’s statement. The funding places development of a domestic model within a broader AI spending program, rather than the sector’s full allocation.

This track also includes support for processing units, data and talent, broadening spending from building a domestic model to acquiring advanced technologies. The government also included a new allocation of 250 billion won to expand access to AI services for all citizens. Across broader government projects, the Ministry of Planning and Budget grouped these priorities under an allocation of 21.3 trillion won for the three major projects and AI. Official figures show that allocation is up 97.2% from the previous year. These items give the budget a mix of support for technological capabilities and wider public use of services.

South Korea’s exports rose 93.7% year on year in October to $115.28 billion, exceeding a median forecast of 93.2% in a Reuters poll. Reuters said this was the strongest export increase since January 1974. Semiconductor exports jumped 259.4% during the month, while computer sales rose 496.6%. The agency linked chip export growth to continued increases in prices and volumes as major technology companies invest in facilities in their contest to lead the AI industry. It also linked higher computer sales to increased demand for servers for AI services. In an address to parliament, President Lee said exports reached $930 billion between January and October, and that surpassing $1 trillion for the year was within reach.

Factory indicators showed weaker momentum in activity in October, though it remained in expansion. The manufacturing purchasing managers’ index published by S&P Global stood at 51.3 points, down from 53.9 in September and its lowest reading since February. The index remained above the 50-point threshold between expansion and contraction for the 11th consecutive month. Reuters said an S&P Global expert had observed a sharp slowdown in growth in output and new orders. He added that output recorded its weakest growth rate of the year to that point. The report cited weak demand, shortages of raw materials and higher costs among the obstacles facing factories.

On public finances, President Lee said the projected fiscal deficit in 2027 would fall to 0.1% of GDP, compared with 3.9% in 2026. The government also expects the debt-to-GDP ratio to decline to 48.3% in 2027 from 51.6% the previous year. These two estimates put the deficit and debt trajectories alongside the sharp increase in proposed spending. In the market reaction after the budget announcement on 1 September 2026, the yield on South Korea’s 10-year government bond rose 6.5 basis points to 4.378%, according to Reuters. This reading does not indicate how yields moved afterward. The budget proposal still requires parliament’s approval before final enactment.

The next steps include parliament’s review of the proposal, with approval of the 2027 budget expected in December 2026, Reuters reported. After approval, the lead developer of the advanced model will be selected through a competitive tender, potentially in February 2027. The program is scheduled to begin in March 2027. It is planned to operate separately from the existing domestic foundational-model program. The existing program is expected to continue and to select two finalists in a third-stage review during February 2027. Reuters said the new project’s design combines government equity investment with private financing and concentrates computing resources, data and talent within it.