▲ Moody's
International rating agency Moody's has evaluated that 12.5 trillion won allocated from the Future Response Fund to reduce the issuance of new government bonds is credit-positive for the nation's sovereign rating.
This is seen as a positive signal that the government will not spend all the increased tax revenue driven by the semiconductor boom and will slow down the pace of debt accumulation.
While the debt burden has been relatively contained, Moody's also pointed out that it remains at a high level, exceeding the median for countries in the Aa rating category.
Moody's made the assessment in a report released on the 3rd regarding next year's budget bill, which is sized at 820.9 trillion won.
Moody's highlighted the Future Response Fund—allocated at 162.3 trillion won plus alpha, funded by tax revenues from the semiconductor boom—as a "key feature of this budget bill."
Among the Future Response Fund, 45.4 trillion won will be prioritized next year for youth, growth engines, regional development, and education, while 12.5 trillion won has been allocated to scaling down new government bond issuance.
The remaining 104.4 trillion won will be reserved to cushion tax revenue fluctuations or reinforce fiscal buffer capacity.
The government explained that this serves as a "fiscal stabilization dam" to resolve the mismatch between tax revenues and fiscal injections, which typically fluctuate in 3- to 5-year cycles within South Korea's economic structure.
The intent is to respond swiftly to unexpected fiscal spending requirements or tax revenue shortfalls.
Regarding the Future Response Fund, Moody's assessed that "while not massive relative to the size of the fund, the 12.5 trillion won allocated to reducing new bond issuance is credit-positive as a signal that additional tax revenues will not be fully spent and will instead be used to curb leverage (debt)."
Moody's also viewed the government's fiscal balance and national debt projections with optimism.
The consolidated fiscal balance, calculated by subtracting total expenditures from total revenues, shows a surplus of 59.9 trillion won.
Moody's emphasized that if the government's plans are realized, it would mark a return to a fiscal surplus for the first time since 2018.
The ratio of the managed fiscal balance (excluding social security funds) to gross domestic product (GDP) stands at 0.1%, which Moody's evaluated as "targeting a level virtually close to balance" compared to this year's main budget (3.9%) or supplementary budget (3.8%).
The government projected that the national debt-to-GDP ratio will decline from 51.6% in 2026 to 48.3% in 2027, before rising slightly to 49.0% in 2030.
This is a moderated level compared to Moody's previous 2030 forecast of 59%.
In response, Moody's expressed caution, stating, "While the debt burden is relatively contained given the improved fiscal conditions, it is expected to remain high."
Regarding the overall budget bill, Moody's assessed it as an "expansionary and growth-oriented shift aimed at expanding production capacity while the economy experiences rapid growth amid strong artificial intelligence (AI)-driven semiconductor demand."
It added that the government "appears to have struck a balance between fiscal soundness and securing future growth engines," but pointed out that "the impact on creditworthiness will depend on whether productivity and growth dividends actually materialize to offset the risks of structural spending and debt increases."
It also warned that "given the cyclical nature of semiconductor-related tax revenues, if spending exceeds targets, it could lead to another multi-year fiscal expansion and debt increase."
Separately, regarding the public institution restructuring plans announced alongside the budget, Moody's projected that "the consolidation of public corporations and elimination of overlapping functions will contribute to improving overall efficiency among public enterprises."
(Photo: Yonhap News)
※
Copying, redistribution, and unauthorized use in AI training are strictly prohibited.