South Korea unveils largest-ever fiscal budget proposal: AI and semiconductor spending nearly doubles, aiming for "world's highest-performance" sovereign AI

South Korean President Lee Jae-myung on Monday unveiled the country's largest-ever fiscal budget proposal, pledging "big investments in artificial intelligence (AI) and future growth engine industries." In a speech at the National Assembly on Monday, Lee said total spending for 2027 will rise 12.8% to 820.9 trillion won (about US$610.14 billion), including 21.3 trillion won for semiconductors, physical AI and AI data centersnearly double the 2026 level. Another 4.7 trillion won will go toward developing a sovereign AI model, which Lee said will have "the world's highest performance." South Korea also plans to invest heavily in talent development, including training 2,000 specialists to "lead semiconductor design and the regional semiconductor industry," while expanding AI education for students, job seekers and working professionals. South Korea has established university "contract departments" where students can pursue company-linked degrees and secure a path to jobs at companies such as Samsung Electronics and SK Hynix before graduation. Partner companies participate in designing curricula, provide funding and recruit eligible graduates. The record spending plan comes as the International Monetary Fund (IMF) forecasts South Korea's economy will grow 3.3% in 2026, the fastest pace since the post-pandemic rebound in 2021. Lee said the fiscal expansion will bring almost no increase in net government debt, with new bond issuance used to refinance existing debt. The budget also increases defense spending and social security spending for young people. Defense spending will rise 8.2% to 73.3 trillion won. "We will rapidly transform into a smart, elite and powerful military by establishing manned-unmanned hybrid systems based on AI, Siasun Robot&Automation and drones," Lee said. It is understood that the AI wave has driven up global computing power demand, and semiconductor exports have become the core DRIVE of South Korea's high economic growth. Data released by the Korea Customs Service last Sunday showed that October exports rose 93.7% year on year to a record US$115.3 billion. Total exports in the first 10 months of 2026 reached US$930 billion, surpassing the US$900 billion mark for the first time. South Korea posted a trade surplus of US$42.5 billion in October, with imports rising 36% year on year to US$72.8 billion. Lee said that with strong performance in key industries such as semiconductors, South Korea's annual exports are expected to reach US$1 trillion. That would make South Korea the fourth country globally to reach this milestone after the United States, China and Germany. However, he also warned that the distribution of growth dividends is uneven. "In the past, opportunities and gains were concentrated in specific regions, classes and a small number of companiesgrowth for the few. We must complete a major transformation toward growth shared by all." Lee noted that the country's fiscal fundamentals continue to improve: next year's fiscal deficit ratio will narrow from 3.9% this year to 0.1% of GDP, the lowest level in two decades; the government debt ratio will fall from 51.6% to 48.3%.