South Korea posted a fiscal deficit of 38 trillion won last year on the back of increased bond issuances to finance its extra spending on boosting the economy, welfare and job creation following the Middle East respiratory syndrome epidemic, according to the Finance Ministry on Tuesday.

The deficit recorded in the government’s fiscal account, excluding balances of social security funds – a key indicator of public financial soundness – is the biggest in six years. In 2009, Korea had a fiscal deficit of 43.2 trillion won. In 2014, the deficit was 29.5 trillion won.

Despite state revenue exceeding overall expenditure and restructuring of a state-run pension for government employees last year, the national debt increased to 590.5 trillion won, accounting for about 38 percent of the country’s economic output. This translates to net debt per capita of 11.7 million won.

The debt increase of 57.3 trillion won year-on-year is the result of increased debt financing, especially for housing development. However, the total debt was lower than the government’s initial estimate of 595 trillion won, the ministry noted.

“It is a fact that there was some improvement in the (growth rate of the) national debt and that the debt in relation to GDP is increasing. We are always concerned about the increase rate of the debt, but this time, (the slowing growth) has offset those worries,” Cho Yong-man, the fiscal management bureau chief at the Financial Ministry, told reporters.

Of 551.5 trillion worth of state bonds issued last year, the government raised 59.3 trillion won for the housing market, while 485.1 trillion won came from Korean treasuries to refinance its debt and prop up the economy.

The government expects the debt as well as its proportion to gross domestic product to increase further.

The ministry further noted that Korea’s national debt in proportion to GDP was lower than that of the average of the Organization for Economic Cooperation and Development at 115.2 percent.

The country’s debt-to-GDP ratio increased 9.2 percentage points from 2007-2015, while 40.7 percentage points on average for the OECD.

Despite slower pace increase, the government’s debt issues increased its liabilities by 72.1 trillion won to 1,284.8 trillion won in the state balance sheet with assets of 1,856 trillion won, according to the ministry’s financial accounting.

With Korea facing an aging population and high youth unemployment, government expenditure on welfare and job creation with funds raised through bond issues is expected to increase this year.

By Park Hyong-ki (hkp@heraldcorp.com)