Financial markets remain volatile in the wake of tensions in the Middle East, and borrowing costs for households and businesses are rising. Fixed mortgage rates at commercial banks are approaching 6 percent, and corporate bond yields are climbing; on Monday, yields on AA-rated corporate bonds reached the 4 percent range.
Higher global oil prices have also fueled inflation concerns and pushed up government bond yields, adding upward pressure to market interest rates.
Government bond yields had already been rising due to the rapidly growing public debt. The yield on the 10-year Treasury bond climbed from 2.76 percent a year ago to 3.739 percent on Monday, and the yield on three-year bonds rose from 2.56 percent to 3.43 percent during that same period. The increase reflects the expanding government bond issuance driven by fiscal deficits. The national debt is expected to reach 1.415 trillion won ($962 million) by the end of this year, which means the government's interest burden will continue to grow.
Despite this backdrop, the government and the ruling Democratic Party are considering a supplementary budget. President Lee Jae Myung signaled the possibility of an early supplementary budget during a Cabinet meeting on Tuesday, citing the need for additional fiscal support for small business owners and financially vulnerable firms.
Deputy Prime Minister and Finance Minister Koo Yun-cheol also said that the government will use all available policy tools, including a supplementary budget, to minimize any economic shocks and support livelihoods. The Democratic Party has pledged to swiftly review and pass such a plan.
Given concerns over the "three highs" of oil prices, inflation and interest rates following the Middle East conflict, fiscal support for vulnerable groups and struggling businesses may be necessary. As Koo noted, improvements in the semiconductor industry and higher securities transaction tax revenues could allow a supplementary budget without the issuance of new government bonds.
But fiscal caution remains essential. Using excess tax revenue for stimulus rather than for reducing debt could undermine fiscal stability.
Talk of a "cherry blossom supplementary budget," referring to an early spring spending package, should be approached carefully while monitoring international developments and oil prices.
If a supplementary budget follows recent moves to ease the procedures for preliminary feasibility studies, which have long served as a safeguard against wasteful public spending, it may appear to be a pre-election spending measure ahead of the June local elections.
A supplementary budget intended to support people's livelihoods must not become a tool for political giveaways. Public funds should not expand the national debt while being diverted into local projects designed to win votes.
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.