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Korea’s Government Debt Unlikely to Drop for a While
Steady Pace
Korea’s Government Debt Unlikely to Drop for a While
  • By Jung Suk-yee
  • August 20, 2015, 07:00
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Deputy Prime Minister Choi Kyung-hwan said on Aug. 19 that he sees a government debt-to-GDP ratio of 40 percent as an appropriate level, and the ratio cannot but increase for the time being, because welfare spending has to be cut in order to reduce the ratio. His remarks imply that the Korean government may fail to stick to its own mid-term national fiscal management plan for 2014 to 2018.

The government submitted the plan to the National Assembly last year. According to then plan, central and local government debt is to be adjusted to mid-30 percnet of the country's GDP. At that time, the plan was criticized by many as being more passive than the mid-term plan for 2013 to 2017. In response, the government claimed that an increase in government debt is inevitable, because expansionary fiscal policy should be maintained until a recovery of the economy. “The government debt-to-GDP ratio is estimated to reach 36.7 percent at the end of 2017, but begin to decrease from 2018,” it explained.

Last year, the government debt amounted to 530.5 trillion won (US$446.9 billion), equivalent to 35.7 percent of GDP, to exceed its goal by a margin of 0.6 percentage points. The ratio is unlikely to fall below the goal this year as well, due to its supplementary budget, spending for economic stimulus, and welfare expenditures already scheduled.