South Korean government needs a supplementary budget in the scale of from 11.5 trillion won ($9.7 billion) to 26.6 trillion won to weather volatile climate in the global economy following the decision by the British to leave the European Union, Hyundai Research Institute said in its report on Sunday.

The government and ruling party have been discussing creating an extra budget, fearing the shockwave from British departure from the EU bloc further endangering the fragile economy already battered with sluggish exports and domestic demand.

The private research institute claimed supplementary budget was a must not a choice for the local economy due to increased uncertainty in the global economy, the danger of the economy’s falling to a structural recession, and added woes from massive layoffs when industrial restructuring pans out in the second half.

It suggested the country needs an extra spending of 11.5 trillion won to 26.6 trillion won.

The government had planned to expedite 59.5 percent of this year’s earmarked pork-barrel projects worth 279.2 trillion won in the first half to help stimulate growth, leaving just 113 trillion won worth works for the second half. Compared to the average spending during the same period in 2014 and 2015, the second-half spending is about 11.5 trillion short. In order to spend as much in the second half as in the first half, the government needs another 26.6 trillion won, the institute said.

To ensure the economy runs at around 3 percent in the second half - the same pace during the same period over the last two years - it would require extra fiscal expansion of 11.5 trillion won. For more aggressive stimulating action, the government should create a new spending of up to 26.6 trillion won, it said.

“Fiscal expansion when interest rates are at record-low could augment the effect of policy mix for stimuli,” said Hong Joon-pyo, a senior analyst at Hyundai Research Institute, advising the government to be more aggressive in fiscal spending for more lasting aid for growth.

By Lee Seung-yoon

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