Korea’s outstanding debt of its public, corporate and household sectors reached a record high in proportion to its gross domestic product in the second quarter of this year, according to data from the Bank of Korea.
The debt neared 290 percent of Korea’s annual economic output, exceeding the debt-to-GDP ratio of 285.2 percent recorded in the second quarter of 2009, during the global financial crisis.
Asia’s fourth-largest economy had maintained the ratio at 220 percent until 2003, but it began to climb during the former Roh Moo-hyun administration, and breached 270 percent in 2008 when the global financial crisis erupted during the former Lee Myung-bak administration.
In 2006-2007, the debt-to-GDP ratio stood at around 240 percent, and broke the 280 percent mark last year.
The snowballing debt under the Lee administration was attributable to spending on infrastructure such as the four-river restoration project, Korea’s Board of Audit and Inspection said.
The debt incurred during the Roh administration was mostly due to increased welfare spending as the former president promoted a policy of equitable wealth distribution.
The ratio for the nonfinancial or manufacturing business sector increased from 131 percent in the second quarter of 2003 to 158 percent at the end of the second quarter of this year, the data noted.
The household debt-to-GDP ratio reached almost 92 percent, up from 73 percent in the same period.
Meanwhile, government debt in proportion to GDP hit 40 percent from 18 percent in the same period, showing the fastest increase.
The central and regional governments saw their outstanding debt grow almost four-fold from 135.3 trillion won ($124.7 billion) in the second quarter of 2003 to 517.9 trillion won in the second quarter of this year.
Korea’s GDP grew 1.74 times from 742.1 trillion won to 1.2906 quadrillion won in the same period.
The increased debt will put the incumbent administration of President Park Geun-hye to the test on financial soundness amid already high household debt compounded by extra spending.
President Park called for the government to achieve fiscal balance within her five-year term during a meeting with her ministers last month.
She said the government needed to make fiscal reforms by first revising its spending so that the government can bring the national debt ratio to around 30 percent of gross domestic product.
She added that the government needed to make spending cuts in inefficient sectors, but be ready to use its fiscal resources for both the unexpected and expected such as growing pension and health care costs amid a rapidly aging population.
By Park Hyong-ki