Moon Jae-in Government Deficit Bonds Total 259 Trillion Won... Fiscal Soundness 'Emergency'

If Additional Funds Are Injected for COVID-19
National Debt of 1,000 Trillion Won Is a Matter of Time
Deputy Prime Minister Hong Nam-ki: "Manageable... Need Caution and Response to the Rate of Increase"

[Asia Economy Reporter Jang Sehee] On the 2nd, the National Assembly held a plenary session and passed next year's budget bill of 558 trillion won, the largest ever, making a deterioration in fiscal soundness inevitable.

Next year's budget is 2.2 trillion won more than the original government proposal. By adding the third disaster relief fund and vaccination budget to respond to the novel coronavirus infection (COVID-19), total expenditure is expected to increase by 45 trillion won compared to this year. National debt will reach 956 trillion won, 3.5 trillion won more than the government proposal. The national debt-to-GDP ratio rose to 47.3%. This is 3.4 percentage points higher than the 4th supplementary budget (43.9%). There are concerns that if additional funds are injected due to the prolonged COVID-19 pandemic, the national debt could approach 1,000 trillion won.

Total revenue was revised down by 400 billion won from the government proposal to 482.6 trillion won. Accordingly, the integrated fiscal balance, which shows fiscal soundness, is expected to reach a deficit of 75.4 trillion won.

The size of deficit bonds to be issued next year will reach 91.9 trillion won. As a result, the total deficit bonds issued during the Moon Jae-in administration are expected to reach 259.4 trillion won. Deficit bonds were 18.3 trillion won at the start of the Moon administration in 2017 and increased to 104 trillion won this year. In 2018 and 2019, deficit bonds of 10.8 trillion won and 34.4 trillion won were issued, respectively.

Academics agree that if fiscal soundness deteriorates and the national credit rating falls, the economic shock will intensify.

Professor Lee In-ho of Seoul National University’s Department of Economics said, "The amount of deficit bonds issued by the government over the past four years is nearly half of next year's total budget (558 trillion won). This is money that must be repaid someday, but with COVID-19 continuing, it is difficult to prevent through economic growth." He added, "In a situation where various taxes such as comprehensive real estate tax are rising, total revenue decreasing suggests that the earnings of taxpayers have declined."

Professor Kim Sang-bong of Hansung University’s Department of Economics stated, "If deficit bond issuance rapidly increases within 10 years, the national credit rating will fall, and a default situation cannot be ruled out. If the government cannot repay principal and interest simultaneously, the economic shock will be very severe." He also argued, "To prevent excessive budget increases, it is necessary to make fiscal rules legally binding."

In this regard, Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki said, "Next year's budget can be sufficiently absorbed and managed within fiscal capacity. However, the speed of increase requires caution and preemptive response."

With additional funds expected due to the resurgence of COVID-19, fiscal soundness is likely to worsen further. In fact, last month, President Moon urged policy review and support measures regarding issues faced by irregular workers with a high proportion of female workers such as caregivers, after-school teachers, and child care workers, stating, "They are exposed to the risk of COVID-19 infection and are suffering significant economic hardship due to COVID-19."

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