Fitch and Moody's Praise Government Budget, Stress Need to Translate Gains into Real Productivity and Growth Rate Improvements

Praised for Improved Fiscal Balance and Stabilized Debt Ratio

Focus on Whether 'Surprise Tax Windfall' Will Drive Potential Growth

International credit rating agencies Fitch and Moody's have both offered positive assessments of the Korean government's 2027 budget proposal, stating that it strikes a balance between enhancing fiscal soundness and securing future growth engines. However, both agencies also underscored that the recent boom in tax revenues may only be temporary. They presented a clear task for Korea: to ensure that the benefits from the semiconductor supercycle are translated into productivity innovation and a genuine rebound in the nation’s potential growth rate.

SK hynix semiconductor fab construction site in West Lafayette, Indiana, USA. Photo by Yonhap News.

According to the Ministry of Economy and Finance and the Ministry of Planning and Budget on September 9, Fitch projected in its newly released report that the fiscal performance of Korea under the 2027 budget would significantly outperform previous estimates. Fitch forecasted that Korea’s managed fiscal deficit would shrink rapidly from 3.9% of GDP in 2026 to just 0.1% in 2027, while the consolidated fiscal balance would post a surplus of 1.9% of GDP. The national debt ratio is also expected to stay at 48.3%, well below the previous projection of 51.7%, putting Korea on a clearly more stable downward trajectory.

Fitch especially highlighted the buffer function of the new Future Response Fund. The fund is structured to absorb the volatility of fiscal income caused by economic fluctuations, and the agency noted that concentrated investment in national strategic industries such as artificial intelligence (AI) and semiconductors would help ease medium- to long-term growth constraints posed by population aging and low birth rates.

Moody's, which released its report on September 3, also praised the budget proposal, describing it as striking a sophisticated balance between fiscal prudence and securing future growth engines. Moody's pointed out that the surge in semiconductor demand driven by expansion of the AI ecosystem has led to a significant boost in tax revenues, greatly expanding the government’s fiscal capacity. Most notably, it praised the government’s decision to allocate some resources from the Future Response Fund to curb the net issuance of government bonds in advance, calling it a highly positive factor for the national credit rating by proactively limiting leverage expansion.

Although global credit rating agencies have rarely delivered such praise in response to a government budget proposal, significant structural warnings were also embedded in their analyses. Fitch stressed, “It is important that temporary increases in tax revenue are linked to improvements in productivity and potential growth rates,” adding that if the semiconductor cycle returns to normal, the fiscal deficit could start to gradually widen again. Moody's also cautioned that discipline in adjusting expanded expenditures as planned, and the actual implementation of investments in strategic industries leading to real productivity gains, would be necessary.

The government plans to use these evaluations as a foundation to strengthen its external outreach to major global credit rating agencies and foreign investors, promoting the soundness of the Korean economy and its medium- to long-term growth strategies.

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