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Korea’s Total National Debt at Critical Level
Debt Crossroads
Korea’s Total National Debt at Critical Level
  • By Jung Suk-yee
  • June 23, 2015, 03:30
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The Korea Economic Research Institute released a report warning against an increase in the national debt, while the Korean government is moving ahead with a revised supplementary budget of over 10 trillion won (US$9 billion).

According to the report, Korea’s total national debt as of the end of 2013 is estimated at 4.8353 quadrillion won (US$4.37682 trillion), which is equivalent to 338.3 percent of its GDP. The debt is divided into 1.9589 quadrillion won (US$1.7732 trillion) in government debt, 962.9 trillion won (US$871.6 billion) in household liabilities, and 1.9135 quadrillion won (US$1.7321 trillion) in corporate liabilities.

“The government debt does not exceed those of major countries, but that of state-run enterprises and households are too much,” the institute explained, adding, “The importance of debt management based on restructuring and improvement in economic fundamentals is on the rise.”

The institute mentioned an interest rate hike in the United States as an external factor that could add to the risk. “At present, the benchmark interest rates of the U.S. and Korea tend to move in the same direction and each economic subject, that is, the government, corporations and households need to take a proactive action with the U.S. predicted to raise its interest rate,” it said, continuing, “Unlike the government and corporations, households are quite limited in the variety of financing means, which means they should bear the entire additional interest costs to follow the interest rate hike.”

It also pointed out that the fiscal burden can increase if the treasury bond rate goes up with the fiscal deficit increasing. “The current change in the housing market and the pace of increase in household debt imply the likelihood of a Japan-style recession in Korea and the government will have to pursue economic revitalization based on restructuring,” it added.