Rising welfare costs, slowing growth flagged as drivers of debt surge

Senior citizens gather at Tapgol Park in Jongno-gu, central Seoul, July 29. (Newsis)
Senior citizens gather at Tapgol Park in Jongno-gu, central Seoul, July 29. (Newsis)

South Korea’s national debt is projected to more than triple over the next 40 years, with the ratio of debt to gross domestic product reaching 156 percent by 2065. Rising mandatory expenditures and slowing growth were cited as the main threats to fiscal stability.

The Finance Ministry on Wednesday submitted its Long-term Fiscal Outlook for 2025–2065 to the National Assembly, in line with the National Financial Act, which requires a review of 40-year projections every five years.

Based on a baseline scenario using median population and neutral growth assumptions, the debt ratio, now at 49 percent of GDP, is expected to hit nearly 100 percent by 2045, 126 percent by 2055 and 156 percent by 2065.

The projection is broadly in line with other state institutions, including the Korea Development Institute, which forecast 145 percent by 2060, and the National Assembly Budget Office, which projected 173 percent by 2072.

With expansions in social insurance and the basic pension system, the share of mandatory spending is projected to rise nearly 10 percentage points, from 13.7 percent in 2025 to 23.3 percent in 2065, while discretionary spending will slip from 12.8 percent to 11.5 percent.

Working-age population is forecast to shrink from 35.91 million today to 18.4 million in 2065, while the share of people aged 65 and older will more than double from 20 percent to 47 percent.

The revenue-to-GDP ratio is expected to peak at 26.5 percent in 2035, up from 24.2 percent today, before sliding to 24.1 percent in 2065. By contrast, total spending will climb to more than a third of GDP by 2065, from 26.5 percent now.

The ministry stressed that the estimates were mechanical, and that results could shift significantly with structural reforms. For example, if 5 percent of discretionary spending increases were cumulatively saved over 20 years and the trend maintained thereafter, the debt ratio in 2065 could fall to 150.3 percent.

“Because the effects of even small adjustments accumulate over the long term, changes in factors such as measures to address low birth rates, growth promotion, spending and revenue can significantly alter the outlook,” a ministry official said.

The finances of major social insurance programs are also expected to deteriorate. The National Pension Service is projected to swing into deficit in 2048 and deplete its fund by 2064. The Teachers’ Pension and National Health Insurance will both fall into deficit by 2026, with reserves exhausted by 2047 and 2033, respectively.


jwc@heraldcorp.com