SEOUL, Jan. 18 (Yonhap) — South Korea plans to sell similar amounts of government bonds over multiple periods to minimize its impact on the government bond market as it plans to use the selling off debt to fund a supplementary budget, a senior government official said. an official said Tuesday.
The Ministry of Finance is working on a new supplementary budget tranche of some 14 trillion won ($11.7 billion) to support small traders hit hard by the COVID-19 pandemic.
“Treasury bill issuance will be spread as evenly as possible with the aim of minimizing the impact of the debt sale on the government bond market,” said Second Deputy Finance Minister Ahn Do. -geol.
He said the ministry plans to take timely action if bond market volatility increases.
Bond yields soared on the back of the central bank’s latest rate hike and additional fiscal plan.
Yields on three-year government bonds rose 10.4 basis points to 2.148% on Thursday, the highest since June 21, 2018. Bond prices move inversely to yields.
Last week, the Bank of Korea (BOK) raised the key rate by a quarter of a percentage point to 1.25%. It is the third rate hike since the BOK carried out its first pandemic-era rate hike in August last year.
The additional fiscal plan comes as the government reportedly recorded another 10 trillion won in excess tax revenue last year amid the economic recovery.
The planned budget will first be financed by the sale of debt, as excess tax revenues can only be used after the government settles the state accounts for last year in April.
The move came as the ruling Democratic Party raised the need for another additional budget to support affected traders ahead of the March presidential election.
Finance Minister Hong Nam-ki told reporters on Thursday that the government may not fully use excess tax revenue to pay down debt.
South Korea’s national budget for 2022 was a record 607.7 trillion won.
Based on the state budget, the national debt is expected to reach 1,064.4 trillion won this year, an amount equivalent to 50 percent of gross domestic product, according to the Ministry of Finance. It will be the first time the debt has exceeded the 1 trillion won mark.
The ministry set the annual limit for selling its government debt at 166 trillion won this year, down 14.5 trillion won from the 2021 bond issuance.
