Additional Supplementary Budget and Disaster Relief Funds... Deficit Bonds Exceed 90 Trillion Won for 2 Consecutive Years

Additional 2 Trillion Won in Contingency Reserve Expected... Next Year's Deficit Bonds to Reach 91.7 Trillion Won
"Existing Government Budget Spending Structure Must Be Restructured"

On the first day of on-site applications for the emergency disaster relief fund provided by the government to all citizens due to the COVID-19 pandemic, a citizen is waiting for consultation regarding the emergency disaster relief fund at the Woori Bank Euljiro Branch in Jung-gu, Seoul on the 18th. Photo by Moon Honam munonam@

[Asia Economy Reporter Jang Sehee] As the government prepares a supplementary budget (supplementary budget) and disaster relief funds to respond to the novel coronavirus infection (COVID-19), the scale of deficit bond issuance is expected to exceed 90 trillion won for the second consecutive year. As the issuance of deficit bonds to cover the shortfall reaches an all-time high, concerns are raised that fiscal soundness will further deteriorate.

On the 30th, according to the government and the ruling Democratic Party of Korea, the ruling party and government agreed to reflect the third disaster relief fund of around 4 trillion won in next year's budget. The funding plan is to reduce 2 trillion won from next year's main budget (556.8 trillion won) and procure the remaining 2 trillion won by allocating a purpose reserve fund. Since the purpose reserve fund is allocated in the general account, issuing deficit bonds is inevitable.

A government official said, "If the purpose reserve fund increases next year, it will be procured through government bonds, so deficit bond issuance will inevitably increase."

According to the Ministry of Economy and Finance, the scale of deficit bond issuance in 2020 and 2021 reached 104 trillion won and 89.7 trillion won, respectively. If the purpose reserve fund is increased by about 2 trillion won, next year's deficit bond issuance will be 91.7 trillion won. Looking at last year, the deficit bonds were 60.3 trillion won in the main budget but reached 104 trillion won after four supplementary budgets.

In 2017 and 2018, deficit bonds of 18.3 trillion won and 10.8 trillion won were issued, respectively. As a result, national debt increased to 846.9 trillion won, and the national debt-to-GDP ratio reached an all-time high of 43.9%.

Fiscal balance is worsening as fiscal spending increases to respond to the economy. According to the "Monthly Fiscal Trend November Issue" announced by the Ministry of Economy and Finance on the 10th, the integrated fiscal balance deficit, which is total revenue minus total expenditure, was 9.6 trillion won, an increase of 5.4 trillion won compared to the same month last year. The managed fiscal balance deficit also increased by 4.9 trillion won to 12.4 trillion won.

In this regard, academia advises that securing funds through expenditure restructuring is necessary rather than issuing deficit bonds. Professor Kim Taegi of Dankook University’s Department of Economics said, "The third disaster relief fund should focus on small business owners who have been severely affected by social distancing," and added, "Since it is the process of reviewing next year's main budget, expenditure restructuring by item is necessary rather than additional allocation of reserve funds." Professor Kim Sangbong of Hansung University’s Department of Economics also emphasized, "If procured through the purpose reserve fund, deficit bond issuance is inevitable," and "Ultimately, fiscal soundness will inevitably deteriorate."

Meanwhile, Deputy Prime Minister and Minister of Economy and Finance Hong Namki views the pace of increase in the national debt ratio as manageable. Deputy Prime Minister Hong previously stated, "It is true that the national debt ratio will rise to 44% this year and 47% next year due to four supplementary budgets," and added, "Compared to other major 20 countries (G20) and OECD advanced countries, it is a manageable level."

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