Analysts attribute fast rise to undertaking of numerous public infrastructure projects
Korea’s public sector debt stood at 789.4 trillion won ($702.3 billion) as of September as the government struggled to curb household borrowing, data showed on Sunday.
The combined debt owed by the government and state-run enterprises marks a 9.2 percent increase from a year earlier, the Finance Ministry said. The total debt is 2.4 times the government’s 325.4 trillion won budget for this year.
The figure places policymakers under pressure to shore up public finances as weaker growth expected for this year and the next eats into tax revenues and hampers plans to balance the country’s books by 2013.
The news comes as the ministry, in control of the budget, vowed to tighten public spending, especially as calls to increase welfare expense mount.
“Some have suggested that a supplementary budget may be needed to prevent a hard landing or collapse of growth, given that there is little room for flexibility in monetary policy,” Finance Minister Bahk Jae-wan said in a contribution to the Wall Street Journal on Friday.
“The government prefers to expand and secure the tax base rather than increase the tax rate.”
Analysts attribute the rapid rise of debt to the heavier-than-usual undertakings in public infrastructure projects last year, such as the four-rivers and public housing projects.
State-run companies saw their combined debt rising 14.4 percent from a year ago to 353 trillion won as of September.
The country’s public and private-sector borrowing in proportion to the total output, represented by the debt-to-GDP ratio, reached 2.6 at the end of June, data compiled by brokerages say. The reading was based on the rosy assumption that the economy expanded at 8 percent last year to 1,267 trillion won. Real GDP rose by 3.6 percent last year.
Household debt is approaching $1 trillion and quickly encroaching on consumer spending.
Outstanding household credit, including loans from commercial banks and the secondary banking sector, rose to a record high of 892.5 trillion won ($791 billion) at the end of October, up 45.6 trillion won or 5.4 percent from a year earlier, according to the Bank of Korea. The amount is projected to reach $1 trillion in one or two years should the current growth rate continue.
By Cynthia J. Kim (email@example.com