Agreement on the 4th Supplementary Budget by the Ruling Party, Government, and Blue House... National Debt Approaching 850 Trillion Won if 7 Trillion Won Deficit Bonds Issued

Democratic Party Chief Spokesperson Choi In-ho is briefing the results of the high-level party-government meeting at the National Assembly Communication Office in Yeouido, Seoul, on the afternoon of the 6th.
[Image source=Yonhap News]

[Asia Economy Reporter Seongpil Cho] In the wake of the resurgence of the novel coronavirus infection (COVID-19), the formulation of the 4th supplementary budget bill (supplementary budget) in 59 years was officially announced on the 6th. However, concerns have arisen that issuing deficit bonds for the 4th supplementary budget will further increase the national debt, which has already grown due to three previous supplementary budgets, thereby worsening fiscal soundness.

The Democratic Party of Korea, the government, and the Blue House decided on the same day to set the 4th supplementary budget for overcoming the COVID-19 crisis at around 7 trillion won. According to Democratic Party senior spokesperson Inho Choi's briefing at the National Assembly, the party, government, and Blue House held a high-level meeting at the Prime Minister's official residence and reached this consensus. Unlike the 1st emergency disaster relief fund, which targeted the entire population, the support will be 'customized' to selectively assist COVID-19 affected groups.

However, the problem lies in the funding. If the entire 4th supplementary budget is financed by issuing deficit bonds, concerns over fiscal soundness deterioration are expected to grow. The government issued deficit bonds worth 10.3 trillion won during the 1st supplementary budget, 3.4 trillion won during the 2nd, and 23.8 trillion won during the 3rd supplementary budget this year.

After the 3rd supplementary budget, the national debt soared to 839.4 trillion won, and the national debt-to-GDP ratio rose to a record high of 43.5%. If an additional 7 trillion won in deficit bonds is issued for the 4th supplementary budget, the national debt will reach 846.4 trillion won, approaching 850 trillion won. The national debt ratio is also expected to rise to 43.9%, nearing 44%.

The government will also need to revise the national debt forecast in next year's budget proposal submitted to the National Assembly. Next year's national debt is expected to surpass 950 trillion won, rising from the initial 945 trillion won to 952 trillion won, and the national debt ratio is projected to increase by 0.4 percentage points from 46.7% to 47.1%.

Deputy Prime Minister and Minister of Strategy and Finance Hong Nam-ki emphasized during the briefing on next year's budget proposal that "In a quarantine and economic wartime situation, it is the shortcut to overcoming the COVID crisis early and becoming a leading country by faithfully executing the fiscal role required, even if it means temporarily enduring debt and deficits."

Under this policy, the government is expected to proceed with the 4th supplementary budget through large-scale deficit bond issuance, but experts stress that even if an additional supplementary budget is inevitably formulated, concerns about fiscal soundness should not be forgotten.

This content was produced with the assistance of AI translation services.