Fitch projects managed fiscal balance deficit at 0.1% of GDP next year

State debt ratio seen at 48.3%, below earlier 51.7% forecast

Agencies: temporary tax revenue gains must translate into higher productivity, potential growth

Moody's, a global credit rating agency [Reuters]
Moody's, a global credit rating agency [Reuters]

International credit rating agencies Fitch and Moody's have both issued positive assessments of the government's 2027 budget, saying it strengthens fiscal soundness while expanding the country's future growth engines.

According to South Korea's Ministry of Economy and Finance, Fitch said in a report released Wednesday that the country's fiscal performance under next year's budget would improve significantly beyond its earlier projections.

Fitch forecast that the managed fiscal balance deficit as a share of GDP would narrow from 3.9 percent this year to 0.1 percent next year, while the consolidated fiscal balance would post a surplus equivalent to 1.9 percent of GDP.

The state debt ratio is also expected to come in at 48.3 percent of GDP next year, below Fitch's earlier projection of 51.7 percent. The agency said the sharp improvement in the fiscal balance would put state debt on a more stable trajectory than previously anticipated.

Fitch said the government's Future Response Fund could help ease volatility in fiscal revenue caused by economic cycles. It also said investment in strategic industries such as AI and semiconductors could raise productivity and growth potential, helping offset medium-term growth constraints stemming from the low birth rate and aging population.

However, Fitch cautioned that because the recent rise in tax revenue depends heavily on strength in the AI and semiconductor sectors, the fiscal deficit could gradually widen once the chip industry normalizes. The agency said it was important to channel temporary tax revenue gains into effective investment that lifts productivity and medium-term potential growth.

Moody's, in a report released Thursday, likewise said South Korea's 2027 budget was seeking to strike a balance between securing fiscal soundness and expanding future growth engines.

Moody's projected that fiscal conditions would improve on the back of rising AI-driven semiconductor demand and the resulting expansion in tax revenue. It said using part of the Future Response Fund to reduce net government bond issuance was particularly positive for the country's credit standing, as it curbs government leverage.

However, Moody's added that it was important for the government to execute the expanded funding as planned so that investment in strategic industries translates into higher productivity and potential growth.

The Ministry of Finance and Economy said, "Going forward, we plan to actively communicate the government's fiscal policy and mid- to long-term growth strategy to major credit rating agencies and global investors."


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