Today's France, tomorrow's Korea? Fiscal warnings mount despite chip boom
Rapid aging, rising debt and expanding mandatory spending could push Korea toward fiscal distress within 10 to 15 years despite a semiconductor-driven revenue windfall.
A masked protester throws a bottle amid clashes at the Place de République during a day of demonstrations against the cost of living and rising fuel prices in Paris as part of nationwide protests called by the “Yellow Vests” movement, joined by French high school and university students, teachers and parents demanding better school conditions and government action, as well as labor unions, workers, farmers and retirees, France, on Oct. 17.REUTERS/YONHAP
A semiconductor boom has flattered Korea’s public finances this year, but rapid aging, rising debt and mounting mandatory spending are pushing the country down a path that could lead to a fiscal crisis like France’s.
Korea and France currently face different fiscal conditions, but “if population aging, rising national debt and delays in structural reform overlap, Korea could face ‘fiscal distress’ within the next 10 to 15 years, with its fiscal policy options sharply narrowed,” said Kim Woo-cheol, a professor of taxation at the University of Seoul.
Fiscal distress is not a default, but it means the government would struggle to raise the funds it needs or to pay for new policies.
Chronic fiscal deficits and mounting public debt lie at the heart of the political and social turmoil gripping France. The Organisation for Economic Cooperation and Development's (OECD) Economic Survey of France 2026 shows that France and the eurozone, which comprises 21 countries that use the euro, increased public spending by similar amounts during the 2008 global financial crisis.
By 2019, however, France had reversed only half that increase, compared to an average of three-quarters across the eurozone.
Welfare spending continued to rise as the population aged, while expenditures that expanded during economic downturns proved difficult to reverse.
France's government debt reached nearly 3.6 trillion euros ($4.04 trillion) at the end of the second quarter, equivalent to 119 percent of GDP, according to figures released Wednesday by France's national statistics agency, Insee.
For now, Korea's fiscal indicators are considerably healthier than France's, thanks largely to a semiconductor boom that has boosted economic output and tax revenues.
The International Monetary Fund (IMF) estimated earlier this month that Korea's general government debt would reach 47.3 percent of GDP this year, down 7.1 percentage points from its April projection of 54.4 percent. The IMF also projected a debt ratio of 49.7 percent for 2031.
But the improved figures offer little room for complacency. Despite collecting more than 63 trillion won ($47.65 billion) in additional tax revenue this year thanks to the unexpected semiconductor boom, the government faces rising debt as spending continues to expand.
Under the government’s 2026-30 National Fiscal Management Plan, national debt is projected to climb from 1.41 quadrillion won this year, based on the supplementary budget, to 1.73 quadrillion won in 2030, an increase of 321.3 trillion won.
Interest payments on government bonds are also projected to rise from 34.4 trillion won this year to 51.1 trillion won in 2030.
Tagging reading “The golden youth” on the statue of Equality at the République square is seen on Oct. 20 after protests over the cost of living turned into rioting and looting across FranceAP/YONHAP
Korea risks following in France's footsteps
Over the longer term, Korea faces slowing economic growth and mounting spending pressures.
Korea's average annual real economic growth rate is projected to fall from 1.7 percent between 2025 and 2035 to 1 percent between 2035 and 2045, according to the government's long-term fiscal projections. Sustaining even 1 percent growth could become increasingly difficult over time.
“It would be difficult to say that Korea is already in the same situation as France,” Kang Sung-jin, an economics professor at Korea University, said. “But if economic growth falls below 1 percent, welfare spending remains difficult to reduce and fiscal deficits continue to accumulate, Korea could follow the same path as France.”
As debt rises and economic growth slows, the debt-to-GDP ratio will inevitably climb.
Korea's national debt is projected to reach 71.5 percent of GDP in 2035, 97.4 percent in 2045 and 126.3 percent in 2055 if current policies remain unchanged, according to the government's third long-term fiscal outlook, released in September last year.
The National Assembly Budget Office projects a ratio of 121.5 percent in 2055.
Both forecasts exceed France's current level of 119 percent, although the figures are based on different measures: The Korean projections use national debt, known as D1, while France’s figure uses the broader general government debt measure, D2.
Korea is also aging far faster than France.
Korea had 29.3 people aged 65 or older for every 100 working-age people aged 20 to 64 in 2024, compared to 40.2 in France, according to the OECD.
By 2054, however, Korea's figure is projected to surge to 84.5, far exceeding France's projected 53.4.
That means fewer people paying taxes and more people receiving pensions and welfare benefits.
Korea's pension spending as a share of GDP would increase by 0.7 percentage points between 2025 and 2030, seven times France's projected increase of 0.1 percentage points and above the advanced-economy average of 0.4 percentage points, according to the IMF’s Fiscal Monitor, released in April.
Visitors observe semiconductor-related products and technologies at an exhibition held in Suwon, Gyeonggi, on Aug. 26.YONHAP
Semiconductor boom offers no lasting guarantee
The semiconductor boom may paint a rosy picture of Korea’s fiscal outlook, but the chip industry is notoriously cyclic, and there is no guarantee the boom will last.
The government has raised its economic growth and tax revenue forecasts in response to the unexpectedly strong semiconductor market. But if the boom ends sooner than anticipated, both growth and tax revenues could deteriorate.
“A sharp reversal [of the AI boom] could mean that exports are dampened, investments also are lower and it will affect, for example, revenues in Korea, as well as tighten financial conditions,” Sonali Jain-Chandra, deputy director of the IMF's Asia and Pacific Department, warned on Oct. 15.
To cushion against fluctuations in tax revenue, the government has established a Future Response Fund, intended to serve as a “fiscal reservoir.” The fund is designed to channel excess tax revenues into future growth industries while providing a buffer against economic downturns.
But questions have emerged over whether the fund will serve its intended purpose.
Of the 130 projects slated to draw on the fund next year, 122 are multiyear projects that will require funding in 2028 and beyond, according to an analysis of Ministry of Planning and Budget data by the office of Rep. Park Soo-young of the People Power Party.
Those projects account for 42.62 trillion won, or 93.9 percent of the fund's total allocations.
Fourteen programs offering cash-like assistance, including a basic income program for farming and fishing communities, were allocated 9.62 trillion won.
The findings have sparked concerns among experts that the fund is becoming a “Present Response Fund” rather than a “Future Response Fund.”
An employee sorts 50,000 won notes at Hana Bank’s counterfeit response center in Jung District, central Seoul, on Feb. 24.NEWS1
Hard to go back
Once government spending increases, cutting it becomes politically and structurally difficult.
Mandatory spending, whose levels are determined by law, is particularly difficult to control and is expanding rapidly as the population ages.
The government's long-term fiscal projections show that mandatory spending will rise from 51.7 percent of the total budget in 2025 to 64.8 percent in 2055.
In three decades, nearly two-thirds of government spending could effectively be locked into commitments that are difficult to reduce.
That could leave less room for investment in education, industry and other areas essential to future growth, as France has experienced under the weight of existing spending commitments.
Mounting fiscal pressure could also deepen tensions between generations and income groups.
“As the number of people who will pay taxes declines rapidly while the number of people who benefit from government spending rises sharply, resistance could grow among younger, higher-income earners who shoulder a heavy tax burden,” Seok Byoung-hoon, an economics professor at Ewha Womans University, said.
“Rather than relying on one-off cash handouts, the government should establish a foundation for sustainable growth by raising productivity through jobs and education and expanding opportunities for young people to build assets.”
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.
