National Debt to Exceed 1,500 Trillion Won Next Year... Debt Ratio to Fall, but Interest Payments Top 40 Trillion Won [2027 Budget Proposal]

Total Revenue Growth Outpaces Expenditure

Government Bond Interest Payments Estimated at 42 Trillion Won Next Year

Despite the largest-ever increase in tax revenues, the national debt is expected to exceed 1,500 trillion won next year. The reason is that, although the increase in total revenue next year—driven by a semiconductor boom—will outpace the increase in total expenditure, the additional tax revenue of around 162 trillion won will be used as initial funding for the Future Response Fund rather than being accumulated in the general account of the national treasury. With national debt rising, the interest expense on government bonds, which surpassed 34 trillion won this year, is projected to increase to 53.3 trillion won by 2030, the last year of the Lee Jaemyung administration.

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The Average Annual Growth Rate of Total Expenditure Remains in the 8% Range, Similar to the Moon Administration

According to the “2027 Budget Proposal” and the “2026–2030 National Fiscal Management Plan” announced by the Ministry of Planning and Budget on September 1, the average annual growth rate of total revenue (9.9%) over the next five years (2026–2030) is projected to outstrip that of total expenditure (8.4%). The total expenditure growth rate, which reached a record high of 12.8% this year, is expected to gradually decline—9.0% in 2028, 7.0% in 2029, and 5.0% in 2030—resulting in an average annual growth rate in the 8% range, similar to the Moon Jae-in administration. Due to continued expansion of spending, the budget is projected to reach 1,005.2 trillion won in four years, surpassing 1,000 trillion won for the first time in history.

As the growth in total revenue surpasses total expenditure, the fiscal balance is expected to temporarily improve. The managed fiscal balance deficit is projected to be around 3.1 trillion won next year. For comparison, based on this year’s supplementary budget, the managed fiscal deficit was 107.6 trillion won. This marks a break from the trend since the 2020 pandemic, when the annual fiscal deficit hovered around the 100 trillion won level, and a significant reduction in the deficit. However, as government spending increases, the managed fiscal deficit is expected to widen again to 100.8 trillion won in 2030, the last year of the current administration.

Deficit-to-GDP Ratio at 0.1%... Fiscal Rule of 3% Maintained During Administration

The managed fiscal deficit relative to GDP next year is expected to improve dramatically, decreasing by 3.8 percentage points year-on-year to just 0.1%. Though the ratio is forecast to rise to 1.5% in 2028, 2.5% in 2029, and 2.9% in 2030, it will remain within the 3% threshold throughout the administration. Although the Lee Jaemyung administration discarded the legislative effort to formalize a 3% fiscal rule (where the managed fiscal deficit stays within 3% of GDP) after taking office last year, the semiconductor-driven tax revenue boom has made it possible to maintain this rule during its term. Vice Minister Jo Yongbum of the Ministry of Planning stated, “Despite ultra-expansionary fiscal policy, we will manage the managed fiscal deficit ratio relative to GDP within 3% on the back of massive increases in semiconductor tax revenue and a rebound in the growth rate.”

Debt-to-GDP Ratio to Stay Below 50%... More Than 10 Percentage Point Improvement Versus Medium-Term Plan

Next year, national debt is projected to reach 1,519.8 trillion won—an increase of 10.5 trillion won from this year’s 1,412.8 trillion won (based on the supplementary budget). National debt will continue to rise after next year, reaching 1,600.3 trillion won in 2028, 1,659.1 trillion won in 2029, and 1,734.1 trillion won in 2030. Despite record-high tax revenues, national debt will keep increasing because most of the additional tax revenue of 162.3 trillion won (which far exceeds the average annual growth rate of domestic tax revenue over the past 10 years) is primarily allocated to the Future Response Fund. Of this, only 12.5 trillion won will go toward repayment of government bonds.

However, as the semiconductor boom temporarily boosts GDP, the debt-to-GDP ratio will improve significantly. The national debt-to-GDP ratio will fall from 51.6% (or 50.6% according to the supplementary budget) in this year’s original budget to 48.3% next year, and is expected to remain in the high 40% range through 2030. In reference to the 48.3% figure, Minister Park Hongkeun of the Ministry of Planning explained, “Last year’s medium-term fiscal plan projected a debt-to-GDP ratio in the 58% range for next year, but we have lowered it by more than 10 percentage points.”

The fiscal balance and national debt ratio are expected to improve in every year from 2025 to 2029 when compared to plan. However, experts caution that such improvements in ratios do not necessarily mean there has been a genuine enhancement in fiscal health. Byunghoon Seok, Professor of Economics at Ewha Womans University, pointed out, “While the semiconductor cycle’s improvement has rapidly increased nominal growth, creating the illusion of an improved debt-to-GDP ratio, this is due to an expansion of the denominator (GDP), not a reduction of the numerator (national debt). Therefore, we need to differentiate this from a real improvement in fiscal soundness.”

Continuous annual increases in national debt have led to a rapid surge in interest payments on government bonds, which is a matter of concern. According to government estimates, interest expenses for government bonds will surpass 40 trillion won for the first time next year, reaching 42.8 trillion won, and are expected to rise further to 53.3 trillion won by 2030. The interest expense to be paid next year alone will exceed the entire industry, small business, and energy budget—allocated for the intensive development of advanced industries such as semiconductors and physical AI—which stands at 41.2 trillion won.

Meanwhile, yields on domestic bonds are likely to rise further, increasing the burden of servicing government bond interest, due to the effects of high U.S. Treasury rates. As of July this year, the government's average procurement interest rate for new government bonds stood at 4.07%, which is significantly higher than the annual average of 2.66% last year and well above the government’s previously suggested level of 3.4%.

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