Additional 8.1 Trillion Won in Government Bonds Issued... 66% of 12.2 Trillion Covered by National Debt [2025 Supplementary Budget]

Debt-Financed Supplementary Budget Raises Fiscal Deficit-to-GDP Ratio from 2.8% to 3.2%
Where Will the 12.2 Trillion Won Supplementary Budget Be Used?
Not Intended for Economic Stimulus... Possibility of a Second Supplementary Budget

The government has decided to issue 8.1 trillion won in government bonds to finance the supplementary budget (supplementary budget) increased to 12.2 trillion won. With the supplementary budget through deficit bond issuance, the originally planned deficit in the management fiscal balance for this year, which was 73.9 trillion won, will exceed 84 trillion won. The national debt-to-GDP ratio will also rise by 0.3 percentage points from the original plan to 48.4%. The government's judgment is that even if fiscal soundness deteriorates somewhat, it is necessary to focus on economic recovery for the time being. It is expected that the implementation of this supplementary budget project will increase this year's economic growth rate by 0.1 percentage points. Considering the unprecedented tariff war triggered by the U.S. and the worst wildfire damage, this supplementary budget is inevitable, but with a significant tax revenue shortfall expected this year as well, the supplementary budget has triggered an emergency signal in the national treasury.

Yonhap News

Debt Supplementary Budget Raises Management Fiscal Deficit to GDP Ratio from 2.8% to 3.2%

On the 18th, the government held an extraordinary Cabinet meeting chaired by Acting President and Prime Minister Han Duck-soo to finalize the 'Supplementary Budget for Wildfire Response and Support for Trade and Artificial Intelligence (AI)' and decided to submit it to the National Assembly on the 22nd. Acting President Han appealed for swift passage through the National Assembly, saying, "To avoid missing the golden time for urgent policies, it is very important to timely deploy precious catalysts for the recovery of the people's economy to the field."

A significant portion of this supplementary budget will be financed through additional government bond issuance. The bond issuance scale accounts for 66% (8.1 trillion won) of the total supplementary budget of 12.2 trillion won. In addition, 200 billion won from the general account surplus funds available for national core finances from the world surplus funds, which are the remaining taxes after deducting expenditures and carryovers from last year's total revenue, and 1.2 trillion won from the Bank of Korea surplus funds will be drawn.

Since the available capacity to use the world surplus funds, which were a major source for supplementary budget financing, is insufficient, the plan is to maximize the use of the Bank of Korea surplus funds and fund resources. The Bank of Korea operates foreign currency assets annually to generate income and pays the government revenue the remainder after excluding the statutory reserve of 30%. The Bank of Korea surplus funds refer to the difference between the expected government revenue and the confirmed amount actually received. This year, the confirmed payment by the Bank of Korea to government revenue increased to 5.4491 trillion won (expected payment was 4.2 trillion won), securing 1.2 trillion won as excess payment.

Various fund surplus resources will also be fully mobilized. These include 1.5 trillion won from the Small Business Market Promotion Fund, 200 billion won from the Housing Fund, and 700 billion won from the Medium Enterprise Fund last year, totaling 2.7 trillion won. Kim Yoon-sang, the 2nd Vice Minister of the Ministry of Economy and Finance, said, "We plan to utilize 4.1 trillion won by maximizing available resources such as world surplus funds and fund surplus resources, and cover the remaining 8.1 trillion won through government bond issuance," adding, "Even if the additional issuance volume is released, it is expected not to have a significant impact on the government bond market."

With the increase in government bond issuance due to this supplementary budget, the national debt this year is expected to rise from the original 1,273.3 trillion won to 1,279.4 trillion won. Accordingly, the national debt-to-GDP ratio will increase by 0.3 percentage points from 48.1% to 48.4%. The national debt-to-GDP ratio improved from 46.9% in 2023 to 46.1% last year but is expected to rise again this year, exceeding 48%. The management fiscal balance deficit, which shows the state of the national finances, will increase by 10.9 trillion won from 73.9 trillion won to 84.7 trillion won. The management fiscal balance is an indicator that excludes the four major social security balances such as the National Pension from the integrated fiscal balance, which is total revenue minus total expenditure. The deficit ratio of the management fiscal balance to GDP will also expand from 2.8% to 3.2%.

Despite the deterioration in fiscal conditions, the government judged that the role of fiscal policy as a catalyst for economic recovery is necessary for the time being. This supplementary budget is the first supplementary budget issued under the acting presidential system and the first in about three years since May 2022. Vice Minister Kim said, "The scale of wildfire damage recovery has been continuously increasing, and domestic and international uncertainties have greatly expanded since the announcement of U.S. reciprocal tariffs," adding, "In addition to this supplementary budget, we will continue to review additional resource reinforcement measures such as fund adjustments if necessary." The explanation is that preventing the deepening of economic recession caused by the aftershocks of the tariff war and prolonged domestic demand slump is an urgent task.

Where Will the 12.2 Trillion Won Supplementary Budget Be Used?

This supplementary budget project includes a large number of measures to respond to tariff damage and support people's livelihoods. It will provide low-interest loans of 15 trillion won to companies expected to be affected by U.S. reciprocal tariffs and offer guarantee insurance benefits worth 10.2 trillion won to small and medium-sized enterprises, mid-sized companies, or companies in promising export sectors. A 500 billion won Corporate Restructuring Fund will be established to restructure crisis-hit companies.

To prepare for shocks caused by trade crises, the public stockpiling budget will be doubled to 400 billion won to secure six key minerals such as rare earths and lithium early. Currently, stockpiling is carried out for 13 key minerals, but recent Chinese export control measures have increased the risk of supply chain instability. For economic security items that are difficult to stockpile or diversify import sources, the government will subsidize 70% of domestic production costs for two years. At the same time, employment retention support fund requirements will be relaxed to prevent the trade crisis from leading to employment instability, and a new regional customized employment slowdown response support project will be launched.

2.5 trillion won will be expanded for loans from the Small Business Promotion Fund and guarantees from regional credit guarantee foundations, and loans of 500 billion won will be expanded for 20,000 early-stage and credit-vulnerable small business owners. Small business owners with medium credit will also be able to receive credit cards with a limit of 10 million won that offer six months of interest-free installment benefits, and 65 billion won will be invested to support discounts for using public delivery applications (apps) for small businesses.

Disaster and emergency measures are also included. Along with expanding wildfire monitoring and suppression equipment, a new wildfire special firefighting team hazard allowance of 40,000 won per month will be introduced, and 15,000 sets of protective equipment will be replaced simultaneously. Forest roads will be doubled to quickly deploy firefighting personnel and equipment to the field. Additionally, 125.9 billion won is allocated to prevent sinkhole accidents by supporting early repair and maintenance of sewage pipelines and roads. Furthermore, 254.8 billion won will be spent to reinforce safety facilities at four airports and expand 15 bird detection radars.

Not Intended for Economic Stimulus... Possibility of a Second Supplementary Budget

The government estimates that the implementation of this supplementary budget project will increase this year's economic growth rate by 0.1 percentage points. Vice Minister Kim said, "Since the purpose of this supplementary budget is primarily focused on support related to disasters, tariffs, and advanced industries, it is not purely aimed at economic response, but it is expected to indirectly affect economic stimulus." Although it is not a supplementary budget for economic response, it is analyzed that disaster, tariff response, and livelihood support will indirectly impact the economy.

Since the supplementary budget does not reflect revenue adjustments, there is an analysis that an additional supplementary budget will be necessary. Revenue adjustments require estimating how much tax revenue will fall short due to changes in economic conditions to calculate accurately. Park Geum-cheol, Director General of Tax Policy at the Ministry of Economy and Finance, said, "It is true that the direction of tariff policy and delayed domestic demand recovery are acting as uncertainties or downward factors from the tax revenue perspective," adding, "However, since it is April now, major tax items such as corporate tax, income tax, and value-added tax have not yet been reflected." Given that the uncertainty of the U.S.-triggered tariff war and the resulting economic changes have not been reflected in this supplementary budget, there is a forecast that a second supplementary budget will be launched after the second quarter when the actual tax revenue decline is identified.