Defense Budget

Over the next five years, South Korea aanouncd plans 12 December 2023 to spend nearly 350 trillion Korean won, or 266 billion U.S. dollars on defense, with a focus on strengthening the military's three-axis deterrence system against North Korea's military threats. It aims to increase the country's annual defense budget by 7-percent each year, so that available financing could reach 60 billion dollars by 2028. The spending plan is subject to National Assembly approval.

The mid-term defense plan has been prepared every year since 1980. The plan aims to allocate spending on a per-year and per-project basis by conducting a comprehensive review of spending on building, operating, and maintaining military strength for five years, in consideration of the external and internal defense environment and national finances.

On 02 September 2021, the Ministry of National Defense unveiled the ‘2022-2026 mid-term defense plan,’ which contains a plan to build, operate, and maintain military strength for the next five years. The ministry plans to actively respond to changes in external and internal conditions after its successful completion of the Defense Reform 2.0 initiative based on this plan.

“We have established the 2022-2026 mid-term defense plan with the goal of achieving ‘Strong Security, Proud Military, Cooperative Defense.’ We will continue to improve defense strength and strengthen force operations by investing a total of 315.2 trillion won (average annual increase of 5.8 percent) over the five years,” a ministry spokesperson said in a statement. For this mid-term defense plan, 315 trillion and 200 billion won has been earmarked, which is an increase of 14.5 trillion won compared to the plan for 2021-2025 established last year.

An increase of 2 trillion and 687.4 billion won was resolved in the National Assembly plenary session; The increase reflects new funding for COVID-19 measures, including giving masks to soldiers. A national defense budget of 52 trillion and 840.1 billion won was finalized for 2021, which is an increase of 5.4% compared to the previous year. On December 2, the National Assembly decided to allocate 52 trillion and 840.1 billion won to the defense budget for 2021, which is an increase of 2 trillion and 687.4 billion won (5.4%) compared to the 2020 budget of 50 trillion and 152.7 billion won, in its plenary session.

The government earmarked 52 trillion and 917.4 billion won as the defense budget for 2021 so that the military can actively respond to non-traditional threats, such as infectious diseases and terror, as well as take proactive measures against omnidirectional security threats, and submitted it to the National Assembly. In the deliberation process of the National Assembly, the government's draft budget was reduced by 287.1 billion won, but was then increased by 209.7 billion won by reflecting funding for securing additional masks to prevent the spread of COVID-19, and a deposit for new 14 defensive strength improvement projects, including the defense satellite communication system-II.

Significantly, this defense budget included funds allocated to containing the spread of COVID-19 in the military. The budget for providing soldiers with masks was set to 48.7 billion and 65 million won, an increase of 16.1 billion and 36 million won compared to the government’s draft budget of 32.6 billion and 29 million won. Also, funding to allow soldiers to buy group insurance was set to 15.3 billion and 13 million won, an increase of about 1.8 billion won compared to the government’s draft budget (13.4 billion and 47 million won).

There is also a budget for new projects, which was not included in the government’s draft budget. Significantly, a budget of 7.1 billion and 89 million won for the localization of materials of combat uniforms was added during the process of deliberation by the National Assembly. A budget of 945 million won was newly earmarked for the construction of guard posts (GP) and magazines of troops which had been damaged by heavy rain this year.

Of the projects in the government’s draft budget that saw reductions, the most significant reductions were in facilities construction. The National Assembly reduced the construction budget for infrastructure projects by 12.3 billion and 20 million won. The budget for the 2nd research and development (R&D) for the Baekdu system capability reinforcement and the defense satellite communication system-II project was also earmarked as defense strength improvement expenses.

The 2nd Baekdu system capability reinforcement project is a project to secure a weapons system to collect signal intelligence around the Korean Peninsula. The ministry and the Defense Acquisition Program Administration planned to carry out this project through domestic R&D. The National Assembly decided to distribute 61.7 billion won out of the budget for the next year to the R&D for the 2nd Baekdu system capability reinforcement. There was also an increase of the budget for the defense satellite communication system-II (46.9 billion and 27 million won) and the R&D for the combined military intelligence system (21.1 billion and 42 million won). Meanwhile, the budget for the Black Eagle-B Batch-II project to introduce new naval patrol killers was reduced by 109.6 billion and 33 million won due to a change in driving conditions.

Seoul's defense ministry asked for a 5.5% increase for the 2021 budget which would amount to nearly US$43.7 billion, the highest ever amount if approved. "The government's proposal is aimed at strengthening not only South Korean military defense capabilities, but also at strengthening its competence against rising non-traditional security challenges including infectious diseases and acts of terror." The defense ministry said 05 September 2020 it would set aside some US$14.3 billion for arms purchases and projects to boost defense capabilities. It will also earmark some US$30 billion for operational costs the highest on-year growth in a decade of 7.1%. In order to better deal with North Korea's nuclear program and weapons of mass destruction the ministry has allocated nearly US$4.9 billion dollars. Some US$762 million are annexed for the development of KF-X domestically produced fighter jets, while nearly US$442 million dollars are set aside for the development of a 3,000 ton next-generation submarine.

The Ministry of National Defense established the '21~'25 mid-term defense plan 10 August 2020, which contains plans for the construction of military power and power operation for the next five years. This "'21~'25 Defense Mid-term Plan" is to prepare for the future by successfully completing Defense Reform 2.0, and to be reborn as an innovative force that "protects peace and creates peace", a total of 300.7 trillion won (annual increase rate of 6.1%).

In order to build a strong military force through the enhancement of advanced power, 100.1 trillion won (33.3%) was invested by reinforcing investment in defense power improvement costs, and 200.6 trillion won in power operation expenses to ensure stable defense operation despite changes in unit structure and power structure. (66.7%) will be invested. Even if the troops are reduced, the combat power will continue to be enhanced with a technology-intensive military structure.

South Korea’s President Moon Jae-in said 22 Octobe 2019 Seoul would increase military spending and urged the North to return to dialogue in a budget speech Tuesday that could infuriate Pyongyang with nuclear talks gridlocked. President Moon called on all sides of the political aisle to work on passing the total government's 440-billion U.S. dollar budget for 2020, a 9.3 percent increase on-year. South Korea will increase defense spending by 58-billion dollars, or 7-percent next year, with the president stressing that a "strong defense" is crucial in "self-determination." The president, who has long championed relations with North Korea, kept his hope for a breakthrough in the nuclear talks.

South Korea’s defense expenditures increased 7.6 percent in 2017 and 8.2 percent in 2018, the highest increase among OECD member countries. On a Purchasing Power Parity [PPP] basis, South Korea already spends more on defense than Japan. By 2019 it ranked eighth in spending, and by 2022 may rank as the sixth highest spender [on PPP basis] in the world on its defense.

On 23 January 2019, South Korea's Defense Agency for Technology and Quality published its annual analysis of the world market for defense products. According to the 2018 Global Defense Market Yearbook, South Korea had the world's 10th biggest budget for defense in 2017 at 39 billion U.S. dollars. South Korea's defense spending took up about 14 percent of its national budget for 2017, a 5-billion-dollar increase from the previous year. From 2008 to 2017, the world's biggest arms exporter was the U.S., selling 90 billion dollars worth of weapons. South Korea was the world's third-largest importer of American weapons with a total of 6.7 billion dollars, showing Seoul's heavy reliance on its ally's military products for its national defense.

The South Korean government is hiking its national defense budget by eight.two percent to about 42 billion U.S. dollars next year. It's the biggest yearly expansion in the defense budget since 2008, and almost double the average annual increase of four.four percent seen from 2010 to 2017. The Ministry of National Defense said 10 December 2018 it received the same amount the government requested earlier this year, but some re-adjustments within the budget were made by lawmakers during the deliberation process. The ministry added the approval shows the National Assembly's firm support for a strong national defense posture.

The biggest chunk of the defense budget -- some 28 billion dollars -- is for the maintenance of troops and military assets, a hike of five.seven percent from the previous year. The ministry aims to use the funds to make the armed forces smarter and more efficient. It will do so by improving training methods as well as upgrading uniforms and combat gear to bring them in line with cutting-edge military technology. Troops will also get more medical support, receive better training, and living conditions in barracks will be enhanced.

Around 14 billion dollars will be spent on the development and improvement of defense capabilities, such as the acquisition of state-of-the-art weaponry like aircraft and naval destroyers. This category saw a more than 13 percent increase compared to the last budget.

About 4.5 billion dollars will be spent on establishing the three-pronged military strategy to counter North Korean threats, as well as future unknown threats. They are namely the Kill Chain pre-emptive strike system, the Korean Air and Missile Defense system, and the Korea Massive Punishment and Retaliation strategy.

South Korean President Moon Jae-in has stressed his desire to build permanent peace on the Peninsula, saying it will act as an economic engine for his country. At the National Assembly on 01 November 2018, Moon called on lawmakers to work together. He added that strong security is also important and next year's defense budget would increase by 8.2 percent. Moon said the national budget is set to increase by 10 percent. Forecasts of slow economic growth caused his support rate to decline. Critics said his policies are to blame for the grim outlook.

The government increased the 2017 defense budget by four percent from 2016, to roughly 40.3 trillion won, centered mostly on reinforcing key military strength. The Defense Ministry said 06 Septembe 2016 that the 2017 plan focused on boosting the Kill Chain and the Korean Air and Missile Defense systems to respond to North Korea’s asymmetric threats. The government allocated 229 billion won for a project on bringing in high-altitude unmanned reconnaissance aircraft, roughly 284 billion won for improving the capability of Patriot missiles, 278 billion won for securing medium-range surface-to-air missiles and some 26 billion won for setting up a harbor surveillance system.

Also under the plan, the government planned to spend about 390 billion won on building a Tactical Information Communication Network to secure cutting-edge military strength and some 16 billion won on a project on a defense satellite communication system. The government also planned to spend some 2.8 trillion won on research and development to make new weapons systems. That’s up nine percent from this year. The defense budget also includef a 9.6 percent raise for soldiers’ wages thanks to a rise in the budget for improving military service conditions.

The Ministry of National Defense (MND) stated 03 July 2013 that the national defense budget needed to be increased 7.3% every year until 2017 in order to adjust to the estimated changes in the strategic environment, and to support the ROK military's flawless mission execution. The MND stated this requirement through the 'National Defense Budget, the Driving Force that Safeguards the Survival of the ROK and the Happiness of the People’, which is a publicity booklet published on 2 July, and emphasized, "In particular, the defense capabilities improvement budget needs to be increased KRW 1 trillion every year."

The MND explained that around KRW 15.2 trillion is required to establish the Kill Chain and the Korea Missile and Defense (KAMD) system in order to prepare for North Korea's nuclear and missile threats. In addition, around KRW 200 billion will be required until 2017 to prepare for cyber threats, and a sufficient amount of defense budget will be required to strengthen the ROK military's defense capabilities in preparation for the wartime operational control transition.

The MND explained that around KRW 1.7 trillion will be required until 2017 to transition the manpower structure into an efficient structure by reducing the number of standing forces and increasing the number of cadres, and around KRW 1.4 trillion to increase the salary of enlisted service members during the same time period. The MND also expressed its strong resolve to improve the living conditions of enlisted service members by stating that around KRW 2.4 trillion will be needed to improve clothing, around KRW 5.4 trillion to acquire hygienic cafeterias that suffice HACCP standards, and around KRW 890 billion for barrack facility improvements.

The National Assembly defense committee chairman Rep. Yoo Seung-min said Aug. 1, 2012, “Regardless of which political party takes power next year, I think, it is inevitable to sharply increase defense budgets.” In his interview with the Defense Media, Chairman Yoo stressed that, although the defense budget should not be raised unreasonably, it is required to be drastically increased in preparation for the reunification and the higher-quality welfare services for military servicemen. “Generally speaking, this end would be made possible when being surely backed up with state leaders’ firm political philosophy and determination to implement. In this respect, the next administration needs to exercise the political leadership to substantially bring about an increase in defense budget, along with the prevention of its inefficient spending,” he added.

[Unit: KRW billion]

Defense Budget[Unit: KRW billion]

Classification	2009	2010	2011	2012	2013
GDP	1,065,037	1,173,275	1,237,128	1,308,642	1,399,076
Government budget (general)	203,550 (13.4)	201,283 (1.1)	209,930 (4.3)	223,138 (6.3)	240,670 (7.9)
Defense budget (billion $)	28,980 ($22.3)	29,563 ($25.7)	31,403 ($27.3)	32,958 (30.8$)	34,497 (30.5$)
Increase(%)	(8.7)	(2.0)	(6.2)	(5.0)	(4.7)
vs GDP(%)	(2.72)	(2.52)	(2.54)	(2.52)	(2.45)
vs Government budget(%)	(14.24)	(14.69)	(14.96)	(14.77)	(14.33)

Seoul's defense budget increased in proportion to the growth of the national economy throughout the 1970s and 1980s, demonstrating how strongly national leaders felt about improving the armed forces. Between 1971 and 1975, defense spending increased from US$411 million to US$719 million. Defense expenditures averaged about 4.5 percent of the country's gross national product. In 1976, the first year that the government included proceeds from the defense tax in published figures for military expenditures, the budget for the armed forces and defense industries increased 100 percent over the 1975 figure to US$1.5 billion. The costs involved in initiating weapons production and the loss of military grant aid from the United States were the major reasons for the gradual increase of defense spending from 5.2 percent of GNP in 1979 to 6.2 percent of GNP in 1982. By 1990 defense spending had increased to almost US$10 billion a year, but because of the dramatic growth in the country's economy, this figure was below 30 percent of the government's budget and less than 5 percent of GNP for the first time since 1975.

Annual defense budgets are proposed by the Ministry of National Defense and approved by the president following consultations with the National Assembly. Beginning in fiscal year 1979, the Ministry of National Defense adopted a budget management system based on the United States Department of Defense project planning budget system. The South Korean system focused on force modernization and the maintenance of military organizations in peacetime at 70 percent of their wartime strength. The government's mobilization and resource management plans for support of the military were designed to bring the armed forces up to full strength quickly and to maintain the country's capability to supply the military during wartime. Under the 1987 Constitution, the National Assembly was accorded more responsibility to review the defense budget and to recommend appropriate levels of spending. In 1990, however, the president continued to have the final say on budget matters.

Approximately 40 percent of the defense budget was devoted to weapons and equipment modernization in 1990. Defense planners established a number of long-range goals: to establish an independent reconnaissance system with intelligence satellites and early warning aircraft; to improve the quality of firepower and the accuracy of domestically produced weapons; to deploy indigenously produced surface-to-air and tactical surface-to- surface missiles; and to replace outdated fighter aircraft and naval vessels with technologically advanced models that would neutralize the threat of North Korea's modern weapon systems.

The operational costs of the three armed services constituted approximately 35 percent of the defense budget. Improvements in training, logistical support to combat units, and pay and benefits provided to military personnel were a part of the increased cost of supporting the armed forces. The acquisition of sophisticated new types of weapons, although contributing to national security, also increased operational costs.

The remaining 25 percent of the defense budget was mostly allocated among the armed forces reserves; South Korea's share of the United States-Republic of Korea combined defense improvement program; research into new defense technologies; and construction and maintenance of military installations.

Between 1974 and 1996, Korea spent a total of USD 246 billion on domestic and foreign procurement in order to improve and upgrade its national defense capabilities. This represents 31.8 percent of the nation's total defense budget. The remaining 68.2 percent has been used to maintain the Korean armed forces at a high degree of readiness, due to the often tense political and military environment on the Korean peninsula.

       TRENDS IN KOREAN DEFENSE PROCUREMENT BUDGETING
                   (BILLION KOREAN WON)
Year      1971  1976   1981   1986   1991    1996    1997    1998
Total
Defense
Budget     174   442   2,764  4,158  7,524  12,243  13,787 14,628
Defense
Procurement
Budget      26   206   1,085  2,317  3,568   4,310   4,218  2,799
Percent of
Total     14.9   46.6   39.3   55.7   47.4    35.2    30.6   19.1
Exchange Rate: Based on the current exchange rate as of
September, 1998(currently one USD equals 1,400 Korean Won)

The ROK's spectacular economic growth permitted the allocation of increasingresources to defense throughout the 1980s and much of the 1990s. The result was that although defense expenditure as a proportion of GNP slipped from 6.0% to 3.3% between 1980 and 1995, the actual amount spent showed a massive increase, year on year, rising to $15.7 billion in 1996. According to the trends of the MND's defense procurement budget from 1971 to 1998, the 1997 budget was 165 times higher than that of 1971.

The Five-year Force Improvement Program (FIP) announced in December 1995 envisioned a military expenditure budget between 1997 and 2001 totalling $115 billion, 26.9% of which would be earmarked fordefense procurement. The annual defense budget for 2001 was projected to be $30.7 billion, putting the ROK into the military expenditure catego-ry of major western European countries. The gravity of the 1997-1998 economic recession, however, produced a decrease in purchasing power of the Korean won of around 50% and led, in 1998, to a major revision of the military budget, with a reduction of 4.9% in the allocation to FIP equipment.

Because of the economic crisis in 1998, Korea's procurement budget was slashed to a level only 108 times higher than the 1971 budget. Furthermore, the procurement budget now accounts for only 19 percent of the total defense budget. Most importantly for U.S. suppliers, the foreign procurement budget was cut 23 percent to 651 billion Korean Won.

The ratios of defense expenditures to GDP and the government budget have changed in line with changes in the security and social environment. Until the early 1980s, the ratios of defense expenditure to GDP and government budget stood at 5% to the GDP and 30% to the government budget respectively, as the MND had steadily promoted projects such as "Yulgok project"since the 1970s to build up military strength for self-reliant defense. But from the late 1980s, the defense budget has been on a downward trend until the early 2000s because of the increasing demand for social welfare, as well as the IMF financial crisis from 1997-1998.

The 2004 defense budget of the Republic of Korea (ROK) was approved by the Korean National Assembly on December 31, 2003. The total defense budget for 2004 is $16.18 billion, up 8.1 percent over 2003. The 2004 budget reflects the government's desire to see the Ministry of National Defense (MND) spend more on "quality of life improvements" --Operations and Maintenance (O&M)-- and less on Force Investment Plans (FIP). The 2004 defense budget continues the government's trend of compelling MND to spend more on quality of life improvements over force development, by authorizing only a marginal increase in the Force Investment Plan budget for 2004. The overall government budget is set at $100.46 billion, a 1.7 percent increase over the 2003 level. The ROK government is trying to hold the rate of increase in the national budget below expected economic growth rates, in order to reduce the fiscal deficit. The 2004 defense budget share of the overall budget is 16.2 percent, compared to 15.6 percent in 2003. Its proportion to the GDP up by 0.1 percent in 2004 -- to 2.8 percent --, compared to 2.7% in previous years.

The total 2004 defense budget is KW18,941.2 billion is broken down into KW6, 300 billion ($5.38 billion) allocated for FIP -- an increase of 9.8 percent and KW12, 641.2 billion ($10.80 billion) for O&M, a 7.3 percent increase. All off-shore purchases come out of the FIP budget. The 2004 defense budget breaks down percentage-wise to 66.7% O&M and 33.3% FIP -which maintains the government's trend of emphasizing FIP expenditures less. The FIP budget is $5.38 billion, up 9.8% over 2003 and 33.3% of the overall defense budget. O&M is $10.80 billion, up 7.3% and 66.7% of the overall defense budget. Although the 2004-2008 Mid-Term Defense Plan calls for incrementally increasing the FIP share from 32.8% in 2003 to 37.9% in 2008 (to help "lay the foundation for a self-reliant defense capacity by 2010"), rapidly increasing O&M costs make this virtually impossible.

The ROKG's refusal to authorize a significant 2004 defense spending increase compels the MND to delay further major force development projects. President Moo-Hyun Roh's announcement that the defense budget would probably not reach 3 percent of GDP during his administration does not augur well for future Mid-Term Defense Plans. Defense budget restrictions will continue to force the MND to continue to neglect short-term readiness to fund long-term force development. While the MND recognizes the importance of interoperability with US forces, it is not an overriding factor in procurement decisions because cost is increasingly a key consideration in major procurement programs. US defense industry must also contend with the Korea's increased emphasis on developing the Korean defense industry base.

It was widely believed that to prepare for OPCON transition the ROK should increase its defense expenditures from current levels. In 2005 the ROK announced a Defense Reform Plan (DRP) 2020 to modernize Korea's defense forces. The plan called for 9.9 percent annual defense budget increases between 2006-2010. The average annual increase had only been 7.2 percent, putting the plan some $3 billion dollars behind schedule. OPCON transition and DRP 2020 are not directly related, but the difficulty in funding the DRP 2020 is an example of the limitations to committing more resources to defense.

The total budget for the Defense Reform 2020 between 2006 and 2020 was assessed to amount to 621 trillion won (force improvement projects of 272 trillion won and O & M of 349 trillion won), including 67 trillion won slated only for the defense reform. The MND, the Ministry of Planning and Budget (MPB), and the Korea Institute for Defense Analyses (KIDA) together reached the same conclusion that such amount will be available for the defense reform, given the nation's economic growth and future government budget trends.

It is desirable that an appropriate defense budget be reached by balancing military requirements commensurate with security threats and the nation's financial capability. However, the" security threat environment" has priority in the allocation of defense budget, for national defense is based on the primary goal of securing national survival. In particular, countries either in a direct military confrontation with enemies, such as the ROK and Israel, or with imminent security threats must decide defense expenditures proportional to their "security threat level." Viewed in this light, even though the ROK is at the top of the "security threat level," the allocation of resources for national defense remains lower than other countries facing disputes and confrontations.

However, an upward trend for the military budget was established by the Participatory Government to promote "cooperative self-reliant defense." As a result, the defense budget was 2.6% of the nation's GDP and 15% of the government budget, as of 2006. The defense budget for FY 2006 concentrated on the reinforcement of self-reliant defense capabilities and the improvement of soldiers'morale as well as welfare in line with the promotion of the "Defense Reform 2020." Financial resources earmarked for national defense amount to 22.5129 trillion won, up 6.7% from the figure of 21.1026 trillion won (including the revised supplementary budget of 280 billion won) in 2005. Such an amount comprises 15.3% of the government budget and 2.6% of GDP.

To promote the first stage of the "Defense Reform 2020,"the "2007~2011 Mid-Term Defense Plan" was formulated to mainly reflect the requirements for self-reliant war deterrence and advanced defense management. Under the plan, 150.7499 trillion won was allocated, maintaining the average increasing rate of 9.9% per year.

The MND sought a Fiscal Year 2011 (FY11) defence budget of KRW31.6 trillion (USD25.9 billion): a KRW2.1 trillion or 7 per cent increase on spending this year. This request amounted to around 2.7 per cent of the country's gross domestic product and is aligned to the country's economic growth prospects in the forthcoming 12 months. Despite an increased likelihood of the defence budget plan being supported, the proposed 7 per cent increase in FY11 was still behind the rate of defence spending outlined in Seoul's long-term military modernisation plan - Defence Reform 2020 -which was reviewed and updated in 2009. This ambitious defence reform plan required 9.9 per cent annual military budget increases from 2006 through to 2010.