South Korea allocates $610 billion in record budget to lead AI race

South Korea's economy is currently experiencing its strongest growth since 2021, driven by a surge in semiconductor exports. Against this backdrop, President Lee Jae Myung presented the nation's largest budget proposal to date on Monday.

Lee told the National Assembly that total spending for 2027 will rise 12.8% to 820.9 trillion won, equivalent to $610.14 billion. The proposal dedicates 21.3 trillion won to semiconductors, physical AI, and AI data centers. This allocation represents nearly double the funding level set for 2026.

A separate 4.7 trillion won will support the development of a sovereign AI model. Lee described this project as targeting the world's highest performance. The government also plans to train 2,000 specialists to lead semiconductor design and the regional industry. These efforts include expanding AI education for students, job seekers, and existing workers.

To secure technical talent, South Korea has established university contract departments. Students in these programs enroll in company-linked degrees that provide pathways to jobs at firms such as Samsung Electronics and SK Hynix before they graduate. Participating companies help design courses, offer financial support, and recruit qualifying graduates.

The IMF forecasts that South Korea's economy will grow 3.3% in 2026. This pace is the fastest since the post-pandemic rebound in 2021. Lee stated that the higher spending would result in virtually no net increase in government debt because newly issued bonds will repay existing debt.

Defense expenditure is set to rise 8.2% to 73.3 trillion won. Lee said the military will rapidly transform into a smart, elite, and powerful force by establishing a hybrid manned and unmanned system based on AI, robots, and drones. The budget also increases social security spending for the youth.

Export data released Sunday by the Korea Customs Service shows shipments surged 93.7% from a year earlier to a record $115.3 billion in October. Total exports reached $930 billion in the first 10 months of 2026, surpassing the $900 billion mark for the first time. The country posted a $42.5 billion trade surplus in October, with imports rising 36% year on year to $72.8 billion. Lee said South Korea was within reach of $1 trillion in annual exports.