Fitch Ratings has projected that South Korea's fiscal performance under the 2027 budget proposal will significantly improve compared to previous forecasts. The agency assessed that both the fiscal balance and national debt ratio will show a more stable trend, emphasizing the importance of investments in strategic industries such as AI and semiconductors to enhance productivity and growth potential.
On September 9, the Ministry of Economy and Finance reported that Fitch's analysis indicated a stronger fiscal performance for South Korea's 2027 government budget than previously expected. The agency noted a substantial improvement in the fiscal balance and a more stable trajectory for national debt.
Fitch forecasts that the managed fiscal balance will improve from a 3.9% deficit of GDP in 2026 to a 0.1% deficit in 2027. The consolidated fiscal balance is expected to record a 1.9% surplus relative to GDP. The national debt ratio for 2027 is projected at 48.3%, lower than Fitch's earlier estimate of 51.7%.
The agency evaluated that the Future Response Fund could help mitigate the volatility of fiscal revenues due to economic fluctuations. It also mentioned that investments in strategic industries like AI and semiconductors could enhance productivity and growth potential, alleviating medium-term growth constraints stemming from an aging population and low birth rates.
However, Fitch cautioned that the recent increase in tax revenue relies heavily on the semiconductor boom, suggesting that if the semiconductor market normalizes, fiscal deficits could gradually widen. Therefore, it is crucial to connect temporary tax revenue increases to improvements in productivity and potential growth.
Previously, Moody's also positively assessed the 2027 budget proposal in a report released on September 3, noting that it seeks to balance fiscal soundness while enhancing future growth drivers.
Moody's projected that the increase in demand for AI-driven semiconductors and the resulting tax revenue expansion would improve fiscal conditions. The agency viewed the plan to use part of the Future Response Fund to reduce net issuance of government bonds as a positive factor for credit ratings, as it would help restrain government leverage.
Nonetheless, it emphasized the importance of adjusting expanded expenditures as planned and ensuring that investments in strategic industries lead to productivity and economic growth.
The government stated, "It is unusual for international credit rating agencies like Fitch and Moody's to positively evaluate our country's fiscal soundness and future growth investment direction in the upcoming budget proposal," adding, "We plan to actively explain our fiscal policies and long-term growth strategies to major credit rating agencies and global investors going forward."
* This article has been translated by AI.
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