National debt to hit 600 trillion won

South Korea’s national debt is expected to exceed 600 trillion won ($496 billion) for the first time ever this week, drawing concerns over the nation’s fiscal health amid a slowing economy and rapid population aging, the National Assembly said Sunday.

According to the national debt clock released by National Assembly Budget Office, the national debt could reach 644.9 trillion won by the end of the year, a 49.8 trillion won increase from the 595.1 trillion won estimated in late 2015.

The total could even hit the 700 trillion mark in 2017, and 761 trillion won by 2019, based on the government’s fiscal management plan, it added.

Debt is growing at a fast pace mainly because the government increased borrowing to fuel the sluggish economy in recent years.

The size of the debt has been growing even faster as Korea suffered deficits in its tax revenue for four consecutive years from 2011 and 2014, the office said.

The swelling national debt could impose a deadweight burden on Asia’s fourth-largest economy, the parliamentary research office said, pointing to the fast growing ratio of national debt to gross domestic product.

The figure, regarded as an indicator for financial soundness, rose to 30.1 percent in 2009 from 16.4 percent in 2001. The figure is expected to surpass the 40 percent mark this year.

Quoting from a long-term fiscal management plan released by the government, the ratio could reach 62.4 percent in 2060, and could go even higher to 158.4 percent if the nation suffers from a continuous drop in economic growth.

Despite the negative forecast, the Finance Ministry said there would be no immediate fiscal danger, stressing that the size of the national debt is lower than other developed economies around the world, and was still manageable.

As of 2014, Korea’s debt-to-GDP ratio was fifth-lowest among 27 member countries of the Organization for Economic Cooperation and Development.

From 2007 to 2015, the average debt-to-GDP ratio of developed nations surged to 114.6 percent from 73.5 percent, a 41.1 percentage point increase. In the same period, Korea’s debt-to-GDP ratio gained only 9.8 percentage points, the ministry said.

The prospect of the nation’s fiscal health is promising, the ministry said, adding that Moody’s Investor Service raised the country’s sovereign rating to a record high “Aa2” in December last year.

The ministry in charge of the nation’seconomic policy said national debt would be slightly above 40 percent this year. But the rate of debt growth will decline after 2018, it said.

Experts, however, raised concerns on the prospect of Korea’s fiscal health that the growing expenditure on welfare for the rapidly aging population could impose additional budgetary pressure on the government.

"As of now, debt-to-GDP ratio is lower than other countries, but this will be problematic in the future, along with the aging population,” said Lee Kang-koo, an analyst at the parliament budget research office, referring to the government’s universal subsidy programs for the elderly.

"Even if the nation maintains the size of expenditure as much as this administration, the national debt is expected to swell, so (the government) should put extra care into managing the speed of debt growth,” he was quoted as saying by Yonhap News Agency.

Citing a rapid drop in the productive population, Park Jong-kyu, a senior researcher at the Korea Institute of Finance, also said that the government should consider raising taxes.

“The nation’s fiscal health will face danger if (the government) remains unchanged, regarding the productive population (aged between 15 and 64) is expected to shrink 40 percent by 2060,” he said.


By Cho Chung-un (christory@heraldcorp.com)