South Korea proposes a record 820.9 trillion won budget for 2027, with an 8.2% defense increase and a sovereign AI push

South Korea’s government proposed a 2027 budget of 820.9 trillion won, a rise of 12.8% and a record^1,2. President Lee Jae-myung presented it as a “Growth for All” plan aimed at inclusive development, social welfare and defense expansion².

The government said the budget targets a sovereign AI model with the “world’s highest performance”¹. The AI push is valued at $15.8 billion³. The budget also raises spending on defense and on social security for young people¹.

Defense spending is set at 73.3 trillion won, up 8.2%^5,6. Lee said the increase is meant to secure the military capabilities needed for the transfer of wartime operational control⁴, including nuclear-powered submarines and KF-21 fighter jets^5,6.

Why it matters to investors

A 12.8% rise in total spending makes this the largest budget the government has proposed^1,2. The priorities it names, AI and defense, sit alongside welfare in the plan, and they are the lines most directly relevant to listed Korean companies^1,5.

The sovereign AI goal reflects a broader concern about access to advanced hardware. Export controls on advanced chips to China have created uncertainty around access to cutting-edge hardware, and European governments are pursuing similar national AI efforts³. A government-funded national model creates potential demand for domestic chipmakers, cloud providers and software firms.

The defense figures matter for the alliance with Washington. Lee tied the increase of more than 8% to the transfer of wartime operational control⁴. Funding for nuclear-powered submarines and the KF-21 jet points to multi-year procurement spending rather than a one-off increase^5,6.

The social side of the plan also carries weight. Higher social security spending for young people is part of the same package¹, so the budget combines industrial policy, military spending and welfare in a single expansion rather than trading one off against another².

What to watch

The figures are the government’s proposal, not a final budget^1,2. The size of the AI and defense lines could change before the plan is adopted.

Investors will watch how the sovereign AI money is allocated between hardware, models and services, and which companies win the contracts^1,3.

The submarine and KF-21 commitments will also be tracked for timelines and contract awards, since they are the most concrete items in the 73.3 trillion won defense plan^5,6.