Korea’s outstanding sovereign, state-backed bonds near W1,100tr

The outstanding amount of government and state-backed bonds increased by a combined 78.3 trillion won from the end of last year to a record high of 1,098.4 trillion won ($900 billion), data showed Monday, with the accelerating growth rate spurring concerns.

Outstanding sovereign bonds increased by 65.7 trillion won to 753.5 trillion won and special bonds gained 12.6 trillion won to 344.9 trillion won, respectively, from the end of last year to Friday, data from the Korea Financial Investment Association showed. Special bonds are usually issued by public institutions and backed or approved by the government.

The data reflects alarming acceleration in the government’s debt issuance to back up its creation and implementation of supplementary budgets for minimization of the economic fallout from the COVID-19 pandemic.

The corresponding figure for combined value of sovereign and special bonds rose by 51.2 trillion won on-year in 2019, which was a noticeably slow growth compared to this year -- which gained nearly 80 trillion won in merely four months.

The figure breached the 1,000 trillion won-mark for the first time on March 28 last year, just 37 months after surpassing 900 trillion won for the first time. It gained another 100 trillion won in just 14 months.

The overall increase in the outstanding amount alongside the accelerating growth rate has been apparently fueled by the government’s allocation of two extra budgets worth a combined 23.9 trillion won earlier this year to combat economic risks from the COVID-19. Both were approved separately by the National Assembly and the government has been recently pushing for a third supplementary budget worth 30 trillion won.

For the first extra budget of 11.7 trillion won passed in March, 10.3 trillion won raised by floating state bonds.

The government then issued 3.4 trillion worth of state bonds for the second extra budget worth 14.3 trillion won on April 30 to funnel its emergency cash handout program for all Korean citizens.

Experts voiced concerns that the increased debt issuance could contribute to Asia’s fourth-largest economy’s deteriorating fiscal soundness amid bleak economic growth forecasts.

“Regarding cases of developed countries, when the issuance of government debt gains traction, it rarely slows down,” Daishin Securities analyst Kong Dong-rak said.

“It could weaken South Korea’s economic structure along with deteriorating fiscal soundness,” he added.

Korea’s economy contracted 1.4 percent on-quarter in the January-March period of the year. This marks the sharpest quarterly contraction since the last quarter of 2008, when the country was hit by the waves of the global financial crisis.

The International Monetary Fund recently projected Korea’s economy to shrink 1.2 percent this year, saying that the global economy would see the steepest downturn since the Great Depression of the 1930s.

By Jung Min-kyung (mkjung@heraldcorp.com)