"Future Response Fund: Borrowing to Build It Up Is Inappropriate; Government Debt Repayment Should Come First"

Korean Association of Public Finance, PPP Rep. Park Sooyoung Hold Forum on 2027 Budget Proposal

Veteran fiscal scholars have expressed concerns about the expansion of national debt and the sustainability of fiscal management over the government’s Future Response Fund, which is being pursued using excess tax revenue from the semiconductor boom. Critics say that, contrary to its stated purpose of investing for future generations, issuing new government bonds to build up surplus funds could increase interest costs. They argued that the government should repay national debt before spending from the fund and establish mechanisms to adjust the scale of projects as funding declines.

The Korean Association of Public Finance and Rep. Park Sooyoung of the People Power Party held a forum on the 2027 budget proposal at the National Assembly Members’ Office Building on Oct. 12 to discuss the fund’s fiscal significance and how it should be managed. Key issues included using excess tax revenue to repay debt, the appropriateness of the fund’s accumulation method, project performance management, and local governments’ fiscal autonomy.

Rep. Park Sooyoung of the People Power Party questions Bank of Korea Governor Shin Hyunsong during a parliamentary audit at the Bank of Korea in Jung-gu, Seoul, on Oct. 12, 2026. [Joint Press Corps] Yonhap News

Rep. Park criticized the Future Response Fund, saying, “It is not a Future Response Fund but a Future Mortgage Fund.” He argued that adding the fund to next year’s budget, which is set to rise to 821 trillion won, could increase the fiscal burden. “Of the future fund, 45.6 trillion won will be spent next year,” he said. “The projects run for three to five years, so not a single won will be left when the Lee Jae-myung administration ends.”

The fund’s financing structure, which involves issuing additional government bonds, also came under scrutiny. The government would have to issue bonds worth 106.2 trillion won to accumulate 104.4 trillion won in surplus funds for the fund, raising concerns that borrowing costs could exceed investment returns. “The government’s bond financing rate is expected to be at least 4.3%, while the fund’s return on accumulated assets is 3.85%,” Rep. Park said, calling it “a negative financial spread.”

Hwang Seong-hyeon, a professor at Incheon National University, also raised the possibility of losses resulting from the interest rate gap between government bond issuance and fund management. “Accumulating surplus funds for future use is possible because the government is issuing new bonds worth a similar amount, 106 trillion won,” he said. “The gap between the interest rate on government bonds and the rate earned on the fund’s surplus assets will result in an economic loss for the public.” He added that while the government must pay interest of around 4.39% on 10-year bonds, it would be difficult to expect the fund, which is managed primarily as short-term assets, to earn a comparable return.

Comparisons with foreign sovereign wealth funds were also raised. “The funds in Norway and Chile are savings that convert resource revenues into financial assets while those countries are net creditors,” said Cho Wondong, a former senior presidential secretary for economic affairs. “We, by contrast, are borrowing to accumulate funds while we are net debtors.” He added, “This is not saving, but another form of spending that passes the burden of repayment on to future generations.”

Some argued that repaying national debt should be the fund’s top priority. Choi Kwang, a former health and welfare minister who chaired the forum, projected that national debt would reach about 1,200 trillion won next year and said, “The government is currently paying an average of about 111.8 billion won a day in interest.” He stressed that “around 100 trillion won of next year’s additional tax revenue should be used to reduce national debt.”

“Among the 11 non-reserve-currency countries classified as advanced economies by the International Monetary Fund (IMF), South Korea has the third-highest debt ratio and the fastest increase in that ratio,” said Yeom Myeong-bae, an emeritus professor at Chungnam National University. “This year, the figure is 56.6%, approaching 60%, which is considered the threshold for non-reserve-currency countries.” He added that “with tax revenue unstable, there is no need to rush excessively into fixed spending in the four areas,” and identified debt repayment as the fund’s highest spending priority.

Ok Dong-seok, chair of the Open Society Forum, called for fiscal rules based on long-term fiscal projections. “We should establish fiscal rules based on long-term fiscal projections spanning more than 30 years,” he said. “Under current laws and institutions, the national debt-to-GDP ratio is projected to reach 173% by 2072, so we need to prepare for the long term.” He also emphasized that repaying government bonds is an investment that preserves future generations’ ability to make fiscal choices.

Others called for improvements to the fund’s spending structure and safeguards. Cho, the former senior presidential secretary, noted that excess tax revenue from the semiconductor boom would be difficult to sustain as a source of funding. “The mechanism to uphold the principle that spending must end if this source of funding dries up is missing from the design stage,” he said. The aim, he said, is to assess the performance of the fund’s 140 individual projects and allow spending levels and durations to be adjusted according to funding conditions.

Concerns were also raised about the decision-making structure for fiscal management. Kim Woo-cheol, chair of the Korean Association of Public Finance, criticized the weakening of the National Assembly’s fiscal oversight during the budget expansion process. Hyun Jin-kwon, a former director of the National Assembly Library, said the Future Response Fund could shift local governments’ spending autonomy, exercised through local allocation tax, into the central government’s decision-making structure.

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