Korea’s public sector debt, general government debt plus nonfinancial public corporations’ debt, amounted to 821.1 trillion won in 2012, representing 64.5 percent of the country’s gross domestic product.
The government disclosed the public sector debt figure for the first time to give a more accurate picture of Korea’s debt profile. It has thus far released information on two types of government debt: national debt, which consists of central and local government debts, and general government debt, which is comprised of national debt and that of nonprofit public institutions.
The government calculated public sector debt on the recommendations of the International Monetary Fund and other organizations. Following the global financial crisis, a consensus has been reached that a new index covering a broader scope of government liabilities is needed to better grasp countries’ debt situations.
In Korea, experts and civic groups have been calling for the inclusion of public corporations’ debt in general government debt as the previous governments have significantly boosted the liabilities of public institutions by forcing them to finance their pet public works projects.
Data released by the Ministry of Strategy and Finance shows that in 2012, Korea’s national debt amounted to 443.1 trillion won, representing 34.8 percent of GDP. General government debt totaled 504.6 trillion won, 39.7 percent of GDP, comparing favorably with the 219 percent of Japan, 106 percent of the United States and 89 percent of Germany.
The ministry says an international comparison of public sector debt figures is still not available because Korea is the first country to tally this new category of debt.
The government’s efforts to enhance the transparency of debt data are commendable. Now it needs to focus on curbing the rapid growth in public sector debt.
To control national debt, the government should keep the growth of total expenditures below that of total revenues. It also needs to introduce a pay-as-you-go rule to ensure that any increase in fiscal expenditures is offset by other expenditure decreases or an increase in revenues.
To rein in local government debt, it is necessary to introduce a local government bankruptcy system and put in place a comprehensive debt management system not just for local governments but for local public corporations as well.
Recently, the government has been stepping up efforts to reduce nonfinancial public corporations’ debt, which totaled 389 trillion won in 2012. It has selected 18 “highly indebted” corporations and told them to submit debt reduction plans. It needs to tighten the screws and force them to make excruciating self-rescue efforts.
Debt problems are serious, not just in the public sector but also in the private sector. Household debt has passed the 1,000 trillion won mark, while corporate debt exceeds 1,500 trillion won. The government needs to address household and corporate debt problems as well.