Enhancing Fiscal Management for WGBI Inclusion

The South Korean government is steadfast in its pursuit of legal amendments and fee management system enhancements, as announced by Second Vice Minister of Economy and Finance, Kim Yoon-sang, during the Fiscal Operation Strategy Meeting on December 17.

This strategic move is part of a broader plan to strengthen fiscal management and secure the inclusion of Korean government bonds in the World Government Bond Index (WGBI) by November next year.

In September 2022, Korea was designated as an observation country for the WGBI, a pivotal step towards boosting the country's external credibility and attracting foreign investment. The WGBI, encompassing government bonds from 26 major countries and tracked by global investors with a tracking fund size of $3 trillion, is expected to stabilize the exchange rate and market, invigorating the domestic bond market upon Korea's inclusion.

The Ministry of Economy and Finance is committed to finalizing the "2025-2029 National Fiscal Management Plan Guidelines" and the "2025 Long-term Fiscal Forecasting Common Estimation Guidelines" by the end of this year. These guidelines are instrumental in establishing a mid- to long-term national fiscal management plan, ensuring fiscal sustainability and economic stability amidst political and economic uncertainties.

Vice Minister Kim emphasized, "We will continuously pursue the legal amendments by reviewing the status of the measures to strengthen the fee adjustment and management system announced in March, and we will also enhance the fee management system, including regular and continuous fee adjustments and rapid rights relief." He added, "We will continue to communicate with global investors to ensure that Korean government bonds are successfully settled in the WGBI after its inclusion in November next year."

Currently, Korea is progressing with follow-up work ahead of its inclusion in the WGBI. A ministry official mentioned, "When included in the WGBI in November next year, global funds tracking the WGBI will start to enter the domestic bond market in earnest." The government is managing the volume to prevent demand for government bonds from concentrating on specific maturities and is improving tax exemption reporting procedures and foreign exchange accessibility for foreign investors.

Despite recent political instability, including conflicts over the handling of the reduced budget bill, the government believes that these issues will not significantly affect the inclusion in the WGBI. An official from the securities industry explained, "Although there was political conflict over the handling of the reduced budget bill, uncertainty regarding government bond issuance has disappeared."

Private experts have urged fiscal authorities to ensure stable fiscal management despite political and economic uncertainties. The ministry plans to accelerate the process of WGBI inclusion to enhance external credibility and stabilize the exchange rate and market.