The Korea Herald


S. Korea’s debt nears W5,000tr

Asia’s fourth-largest economy’s debt management capability put to test as national, household, corporate debt snowball under coronavirus risks

By Jung Min-kyung

Published : Oct. 5, 2020 - 17:50

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Finance Minister Hong Nam-ki (Yonhap) Finance Minister Hong Nam-ki (Yonhap)
South Korea’s debt -- national, household and corporate -- surged to nearly 5,000 trillion won ($4.3 trillion) last year, hitting a record high, data showed Monday, fueling concerns of the heavier weight it would gain this year due to the coronavirus risks.

The nation’s per capita national, household and corporate debt came to 2,200 trillion won, 1,600 trillion won and 1,100 trillion won in 2019, respectively, data compiled by a lawmaker serving on the National Assembly’s strategy and finance committee showed.

According to the National Assembly Budget Office last year, national debt per capita stood at 14.18 million won as of end-2019, with the debt-to-gross domestic product ratio standing at 38 percent. In comparison, national debt per capita was 7.23 million won in 2009.

The national debt for 2019 officially stood at 728.8 trillion won, but the National Assembly’s committee also took debt related to public institutions and pensions for soldiers and civil servants into account, propelling the figure to 2,200 trillion won.

In detail, debt related to the cost of the maintenance of public assets and institutions stood at 525.1 trillion won, which was a debt-to-GDP figure of 27.4 percent. Debt related to public pensions came to 944.2 trillion won, translating to debt-to-GDP of 49.2 percent.

When considering all this, the nation’s debt-to-GDP came to 114.5 percent with national debt per capita at 42.51 million won, as of end-2019.

The national debt is projected to gain more weight this year, driven by the coronavirus pandemic. The administration, for the first time in Korea’s history, allocated four extra budgets in a single fiscal year. The fourth extra budget alone was worth 7.8 trillion won, while the previous three amounted to some 60 trillion won.

The data revealed that this year’s national debt has officially been raised to 846.9 trillion won just by taking the series of supplementary budgets into account.

From the time President Moon Jae-in took office in 2017, his administration will have added 417.6 trillion won to the national debt by 2022, the data predicts.

The national debt increased 143.2 trillion won, 180.8 trillion won and 170.4 trillion under the 2003-2008 Roh Moo-hyun, 2008-2013 Lee Myung-bak and 2013-2017 Park Geun-hye administrations, respectively.

But the snowballing national debt is not the only problem affecting Asia’s fourth-largest economy. Its household debt and corporate debt are growing as well.

The household debt in 2019 amounted to 1,600 trillion won, which translates to a debt-to-GDP figure of 83.4 percent and per capita debt of 30.95 million won. Of the total, debt tied to home-backed loans amounted to 842.9 trillion won.

The figure has been rising steadily in the past two decades, surpassing 1,000 trillion won in 2013, compared with 472.1 trillion won in 2003.

Corporate debt, which is basically the total volume of loans extended by financial institutions to nonfinancial firms, amounted to 1,100 trillion won last year, which translates to a debt-to-GDP ratio of 58.3 percent. It surpassed 1,000 trillion won in 2018, compared with 705.8 trillion won in 2013. Other official data showed that corporate debt had already reached 1,200 trillion won as of the second quarter of this year.

Experts are concerned about Korea’s fiscal soundness and about how the use of taxpayers’ money to combat virus risks might hinder a post-virus era recovery.

“Even if recovery of the global economy is anticipated after 2021, the growth in debt due to COVID-19 in most countries means that some economies may fall behind in the race to recovery depending on their debt management capabilities,” Yang Doo-yong, an economics professor at Kyunghee University, said at a recent seminar hosted by the Korea Institute for International Economic Policy.

“South Korea needs to focus on stabilization of its financial system and actively participate in the global movement towards recovery,” he added.

Rep. Choo Kyung-ho of the main opposition People Power Party said in the report tied to the data that “due to the current administration’s (measures and) aims to gloss over economic indicators, a debt trap has been set, and the economic activity of the government, (businesses) and citizens have been hit, while the overall risk management capability has deteriorated.”

Meanwhile, the Ministry of Economy and Finance said Monday that it plans to introduce rules to ensure fiscal soundness in 2025. Under the rules, the government aims to contain the nation’s debt-to-GDP ratio to 60 percent and its consolidated fiscal balance to minus 3 percent in 2025. It would keep the growth rate of government spending at the same level as nominal GDP growth, the Ministry of Economy and Finance said in a statement.

By Jung Min-kyung (