South Korean President Lee Jae Myung presented a record 820.9 trillion won national budget to parliament in Seoul on Monday, committing 21.3 trillion won to the South Korea AI budget to expand semiconductor production, sovereign foundation models, and regional data centres.
Key points
- Total spending for 2027 will increase by 12.8 per cent to 820.9 trillion won, with AI and semiconductor allocations nearly doubling from 2026 levels.
- The plan earmarks 4.7 trillion won to build a sovereign AI model designed to compete with leading global systems.
- A 162.3 trillion won Future Response Fund will channel tax revenue from chip manufacturing into research, talent programmes, and regional compute hubs.
- South Korean exports reached $930 billion in the first 10 months of 2026, putting the country on track to top $1 trillion in annual trade.
The three megaprojects
Addressing the National Assembly on Monday, President Lee said his administration would double state backing for core technology programmes. The 21.3 trillion won package focuses on three state-backed priorities: advanced semiconductors, physical AI systems such as industrial robots, and domestic AI data centres.
Lee pledged to “boldly invest in AI and future growth engines.” He told lawmakers that public spending would reinforce domestic supply chains as international competition for compute and manufacturing capacity quickens.
A dedicated 4.7 trillion won will fund the development of a sovereign foundational model. The administration wants a home-grown system with what Lee described as the “world’s highest performance,” ensuring domestic industries do not rely entirely on foreign model providers.
Funding from the chip boom
The spending package forms part of an 820.9 trillion won expenditure programme for 2027, an increase of 12.8 per cent compared to this year. The government plans to pay for much of the expansion through increased corporate tax receipts generated by domestic chip makers.
Booming global demand for high-bandwidth memory and server processors has driven up profits across the sector. Earlier this autumn, Samsung’s record quarterly operating profit demonstrated the scale of compute-driven revenue flowing into South Korea.
To manage these windfalls, Seoul is establishing a 162.3 trillion won Future Response Fund. The reserve will channel semiconductor tax windfalls directly into future growth industries, youth employment schemes, higher education, and regional development. The fund will also act as a fiscal cushion against future dips in tax receipts.
Lee told parliament that higher overall spending would lead to virtually no net increase in government debt. The treasury intends to use newly issued sovereign bonds strictly to refinance existing liabilities rather than finance structural deficits.
Export records and industrial clusters
The budget announcement follows a rapid expansion in South Korea’s trade balance. Data published on Sunday by the Korea Customs Service showed exports climbed 93.7 per cent year-on-year in October to an all-time high of $115.3 billion. The trade surplus for the month reached $42.5 billion.
Between January and October 2026, total exports reached $930 billion. South Korea is now set to become only the fourth country to exceed $1 trillion in annual exports, joining the United States, China, and Germany.
The International Monetary Fund expects South Korea’s economy to grow by 3.3 per cent in 2026, which would represent its fastest growth rate since 2021. Yet Lee cautioned lawmakers that strong headline figures masked uneven industrial gains.
Lee said the country must move away from growth where gains remain concentrated in specific regions and corporations. To spread technical capacity, the government is supporting an 800 trillion won private sector chip cluster led by Samsung Electronics and SK Hynix in the southwest of the country.
Talent and defence modernization
State funds will also target technical workforce bottlenecks. The plan includes training 2,000 specialist engineers in semiconductor design, with an emphasis on staffing regional fabrication facilities and research hubs.
Universities will expand their contract department programmes. Under these arrangements, students take company-designed degree courses linked directly to firms such as Samsung and SK Hynix, securing tuition funding and formal job placements before completing their degrees.
Military applications will receive a portion of the advanced computing budget as well. Defence spending will climb 8.2 per cent to 73.3 trillion won next year, prioritizing autonomous hardware and command software.
Lee said the armed forces will develop a hybrid system combining crewed and uncrewed hardware based on robotics, automated drones, and applied computer vision. The National Assembly will debate and vote on the 2027 fiscal spending bill over the coming weeks.
