GDP to Rise 0.2%P with Second Supplementary Budget... Monthly Government Bond Issuance Expected to Reach 20 Trillion Won

The second supplementary budget, which is the fourth largest in history, is estimated to raise the country's gross domestic product (GDP) by approximately 0.1 to 0.2 percentage points. The average monthly issuance of government bonds in the second half of the year is projected to be around 18 trillion won. In particular, it is expected that the monthly issuance could reach as high as 20 trillion won in the third quarter.

Kim Jina, a researcher at Eugene Investment & Securities, stated in a report titled "Second Supplementary Budget and Treasury Bond Supply Outlook" on June 23, "The second supplementary budget has been set at 30.5 trillion won. Both the ruling and opposition parties are strongly committed to stabilizing people's livelihoods, and since the ruling party holds a majority, there will likely be little difference between the government's proposal and the bill passed by the National Assembly."

The funding sources for the second supplementary budget, which were previously disclosed, include 19.8 trillion won in government bond issuance, 5.3 trillion won from expenditure restructuring, 3 trillion won from adjustments to foreign exchange stabilization bonds, and 2.5 trillion won in surplus funds from various government funds. Unlike the first supplementary budget, there will be no funding from the Bank of Korea or from world surplus funds.

Kim explained, "Although the scale of the second supplementary budget is large, tax revenue adjustments amount to 10.2 trillion won and expenditure restructuring in the existing budget is also significant at 5.3 trillion won, so the net expenditure is 15 trillion won." She added, "This is similar in scale to the first supplementary budget, which was 13.8 trillion won." She analyzed that "although the specific expenditure items and sectors differ, the estimated GDP growth effect based on the scale is around 0.1 to 0.2 percentage points."

She further estimated, "With this supplementary budget, the monthly issuance of government bonds is expected to increase to just over 20 trillion won at its peak." She continued, "If we calculate the second-half issuance by adding the 19.8 trillion won in government bonds for the second supplementary budget to the amount issued under the budget and the first supplementary budget, excluding the issuance in the first half, the average monthly issuance in the second half will be about 18 trillion won."

This is more than double the amount issued in the second half of last year (9.7 trillion won). Considering that there will be no book closing at the end of the year and no non-competitive bidding in December, it was noted that issuance will be more concentrated in the third quarter, with the possibility of exceeding 20 trillion won per month. Kim assessed, "Although the proportion of issuance is usually lower in the second half, this year the supply burden in the second half will not be insignificant."

Accordingly, Kim pointed out that the key issue will be the July government bond issuance plan, which is scheduled to be announced on June 26. She explained, "After the first supplementary budget, the annual issuance plan increased the proportion of ultra-long-term bonds (20 years or longer), but due to interest rate instability since May, the June issuance plan increased the proportion of short-term bonds." She added, "In July, to alleviate some of the market concerns related to the supplementary budget, there is a possibility that the proportion of long-term bonds will be reduced (and the proportion of short-term bonds will be increased)."