"Relief in Government Bond Issuance Burden Despite Fiscal Expansion Policy Next Year"

Shinhan Financial Investment Report

[Asia Economy Reporter Minji Lee] As the budget for next year has been formulated, there are opinions that even if fiscal expansion policies continue, the burden on supply and demand will not increase due to a reduction in the issuance volume of government bonds.

According to the financial investment industry on the 4th, next year's main budget is 604.4 trillion won, an 8.3% increase compared to the previous year. Considering that the total expenditure including two supplementary budgets this year was 604.9 trillion won, it is a slightly reduced figure. The national fiscal management plan until 2025 was also announced, maintaining an expansionary fiscal stance until 2022 and assuming continued economic recovery, with the government expenditure growth rate gradually adjusted downward.

Although fiscal expansion policies will be maintained, the burden of government bond issuance is expected to be limited. Next year's government bonds are planned to be issued at around 167.4 trillion won. Compared to this year's planned total issuance of government bonds (176.4 trillion won), it is reduced by 9 trillion won, and compared to issuance including supplementary budgets (186.3 trillion won), it is expected to decrease by 18.9 trillion won.

Of this year's net increase in government bonds of 113.2 trillion won, deficit bonds account for 93.5 trillion won. The rest are the Foreign Exchange Stabilization Fund (Oepyeong Fund) for stabilizing the foreign exchange market and the Public Fund Management (Gongja Fund) for integrated management of funds and post office deposits. Including this year's supplementary budget (9.9 trillion won), deficit bonds amounted to 103.4 trillion won. Next year's deficit bond issuance plan is 77.6 trillion won, which is 25.8 trillion won less than this year's supplementary budget volume.

Accordingly, next year, the issuance burden is expected to decrease due to the easing of government bond issuance volume. Researcher Jonghyun Cho of Shinhan Financial Investment said, "Including non-competitive subscription volume, the monthly average issuance based on this year's total issuance was 15.5 trillion won, but next year it will decrease by 1.5 trillion won monthly to 14 trillion won," adding, "This is why the burden of government bond issuance is limited even if the fiscal expansion stance continues until next year."

The total issuance amount until September this year was 153.9 trillion won, and considering the annual issuance limit, the monthly average issuance from October to December is expected to reach 10.8 trillion won. Currently, the monthly average issuance until September is about 17.1 trillion won. Researcher Cho said, "Typically, considering early fiscal execution, a pattern of high issuance at the beginning and low at the end is observed," and "Based on actual issuance, it is expected to be 12 trillion won in October, 12.1 trillion won in November, and 8.4 trillion won in December, so the issuance burden will decrease toward the end of the year."

As the issuance burden decreases, the upper limit of market interest rates is also expected to decline. Researcher Cho analyzed, "Looking at the monthly average issuance ratio from 2007 to 2020, the end of the year has historically been the lowest, which will be a factor in lowering the upper limit of market interest rates," and "From a mid- to long-term perspective, if the Ministry of Economy and Finance's plan to ease the burden of fiscal policy in the year after next is realized, the growth rate of deficit bonds will not increase significantly."

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