Issuing 10 Trillion Won in Government Bonds to Support 6.9 Million People... National Debt Approaching 1,000 Trillion Won

Government Announces Customized COVID-19 Relief Measures Worth 19.5 Trillion Won
Significant Increase in Recipients and Support Amounts Accelerates Fiscal Soundness Deterioration

Prime Minister Chung Sye-kyun and Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki are attending the Cabinet meeting held at the Government Seoul Office in Jongno-gu, Seoul on the 2nd. Photo by Moon Honam munonam@

[Sejong=Asia Economy Reporter Kim Hyunjung] As the government announced a customized COVID-19 damage support plan worth 19.5 trillion won targeting 6.9 million people, it significantly expanded both the scope of support and the amount compared to previous measures. Since issuing deficit bonds close to 10 trillion won is inevitable to secure funding, there are concerns that the realization of the 'national debt reaching 1,000 trillion won,' previously expected in 2022, will occur even sooner.

On the morning of the 2nd, President Moon Jae-in held a Cabinet meeting at the Blue House and approved the 19.5 trillion won COVID-19 customized damage support plan along with a 15 trillion won supplementary budget bill for 2021. At the meeting, President Moon emphasized, "Submitting the supplementary budget bill to the National Assembly in early March for two consecutive years is due to the unprecedented severity of the livelihood and employment crisis caused by COVID-19," adding, "(Resolving the livelihood and employment crisis) is the most urgent task for the government and the National Assembly."

This support plan focuses on assisting small business owners and employment-vulnerable groups who could not operate normally due to government quarantine guidelines related to COVID-19, targeting 6.9 million people. Breaking down the measures: ▲ 8.1 trillion won for emergency damage support including the Support Fund Plus and electricity bill reductions for small business owners and employment-vulnerable groups (5.64 million people) ▲ 2.8 trillion won for emergency employment measures such as employment retention support and customized job creation support (810,000 people) ▲ 4.1 trillion won for COVID-19 vaccine procurement, quarantine response, and compensation for medical institution losses ▲ 2.5 trillion won for damage support for small and medium enterprises (220,000 people) ▲ 1.8 trillion won for employment-linked policy finance support (140,000 people) ▲ 200 billion won for low-income and vulnerable groups support (100,000 people). Notably, the number of small business establishments eligible for the Support Fund Plus increased by 1.05 million to an estimated 3.85 million establishments compared to before.

With both the support targets and amounts significantly increased, the deterioration of fiscal soundness has exceeded the government's initial projections. With this supplementary budget, the national debt reached 965.9 trillion won, nearing 1,000 trillion won. Compared to last year's main budget (805.2 trillion won), it increased by 160.7 trillion won, pushing the national debt-to-GDP ratio to a record high of 48.2%. This is an increase of 8.4 percentage points compared to last year's main budget and 0.9 percentage points compared to this year's main budget.

The integrated fiscal balance deficit, which is total revenue minus total expenditure, reached 89.6 trillion won, the largest ever, with a GDP ratio of -4.5%, the lowest ever recorded. The managed fiscal balance, which excludes the four major social security funds from the integrated fiscal balance, also plunged to a deficit of 126 trillion won, or -6.3% of GDP. This is 1.6 percentage points higher than the 4.7% recorded during the 1998 foreign exchange crisis, marking an all-time high.

Compared to the '2020-2024 Medium-Term Fiscal Management Plan' announced in September last year after the COVID-19 outbreak, the pace of fiscal soundness deterioration far exceeds government expectations. At that time, reflecting the COVID-19 situation, the national debt-to-GDP ratio was projected to rise to 46.7% this year, 50.9% in 2022, 54.6% in 2023, and 58.3% in 2024. However, with this supplementary budget, the national debt surged by 160.7 trillion won compared to last year's main budget, pushing the debt ratio 1.5 percentage points above the forecast. With discussions even mentioning the possibility of a fifth disaster relief payment to stimulate the economy, the figure could approach 50%. If this happens, the national debt-to-GDP ratio could jump nearly 6 percentage points within a year compared to last year's supplementary budget basis (43.9%) and about 10 percentage points compared to the main budget basis (39.8%).

Recently, as government bond yields have risen, there are concerns about weak demand for government bonds and additional fiscal soundness deterioration due to interest cost burdens. Approximately 9.9 trillion won, nearly 70% of the first supplementary budget's funding, will be raised through deficit bond issuance, while the remaining 5.1 trillion won will come from surplus funds in the Special Accounts for Agriculture and Fisheries, Environmental Improvement, and Energy and Resource Projects (2.6 trillion won), fund reserves (1.7 trillion won), and Bank of Korea surplus funds (800 billion won). Choi Sang-dae, Budget General Review Officer at the Ministry of Economy and Finance, explained, "We plan to implement market stabilization measures in a timely manner and minimize market volatility by distributing issuance volumes by timing and maturity," adding, "Since the Bank of Korea has announced plans for simple purchases of government bonds, this will partially ease the supply-demand burden of government bonds and contribute to interest rate stabilization."

Meanwhile, the government plans to submit the related supplementary budget bill to the National Assembly on the 4th after Cabinet approval. If the National Assembly's review and approval proceed as scheduled, support such as the Support Fund for small business owners could begin as early as the 29th of this month.

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