South Korea’s national debt per person is expected to grow at a fast clip to reach 100 million won ($85,800) in 2038 as a result of government’s expansionary spending to keep its economic growth in line with an aging population, a study showed Monday.
Illustrating 2038 as the year when a newborn this year graduates from high school, the Korea Economic Research Institute, a local think tank, warned that future generations will be placed with a heavy financial burden even before they enter college.
If national debt continues to grow at the annual average growth of 6.3 percent estimated between 2014 and 2019, the figure may surpass 200 million won in 2047 and 300 million won by 2052, it added.
National debt, which covers bond sales and financial borrowing by the central and provincial governments as well as nonprofit public institutions, reached a record 846.9 trillion won as of end-December last year, gaining 123.7 trillion won from 2019, according to the Ministry of Economy and Finance.
The country’s debt-to-gross domestic product ratio stood at 44 percent last year, up from 37.7 percent the previous year.
The snowballing debt came as the government sold more bonds to finance its expansionary fiscal policies designed to counter the economic fallout of the prolonged COVID-19 pandemic. Last year, it implemented four rounds of extra budget totaling 67 trillion won to set up emergency relief programs.
With another extra budget worth nearly 15 trillion won drafted in March, the ministry earlier projected that the country’s government debt will reach 965.9 trillion won by end of this year, with the debt-to-GDP ratio climbing to 48.2 percent.
Even though a surge in national debt seems inevitable to respond to the pandemic, experts have raised the alarm over the nation’s fiscal soundness.
“Most of the major economies that have received a high credit rating from global credit appraisers keep their national debt-to-GDP ratio below 40 percent, which acts as a barometer of a nation’s fiscal soundness. Korea’s national debt is growing at an excessively rapid pace,” the KERI said.
The research agency also noted the chronically low birth rate and rapidly graying population would only mean increased government spending on pensions and health care, adding to a burgeoning national debt.
With the gloomy demographic situation, the country’s working age population -- people aged between 15 and 64 -- among Korea’s total inhabitants will decrease from 37.36 million at the end of last year to 33.95 million in 2030, 28.65 million in 2040, and 24.49 million in 2050, according to data compiled by Statistics Korea.
“In order not to hand over excessive debt burden to the future generation, the government’s strong push to introduce legal and institutional grounds for the fiscal rules proposed by the Finance Ministry,” said Choo Kwang-ho, head of KERI’s economic policy division.
Last year, the ministry unveiled rules to ensure fiscal soundness that would limit the country’s debt to 60 percent of its GDP or its fiscal deficit to 3 percent starting in 2025. The new regulation is subject to parliamentary approval.
By Choi Jae-hee (email@example.com