The government has announced its intention to reduce the ratio of household debt to gross domestic product (GDP) to below 100 percent by the year 2027.
On Jan. 4, the government released the “2024 Economic Policy Direction,” outlining its strategy for managing household debt.
According to the Bank for International Settlements (BIS), the current household debt in South Korea stands at 101.7 percent of GDP as of the second quarter of last year, ranking among the highest in the world. Although the household debt ratio peaked at 105.4 percent in 2021, it decreased to 104.5 percent in 2022 due to the impact of interest rate hikes and then showed a declining trend. However, it still remains at a high level, surpassing 100 percent.
In response to this, the government has announced its policy to manage the annual growth rate of household debt within the economic growth rate and stabilize it below 100 percent of GDP by 2027. The intention is interpreted as aiming to achieve downward stabilization by moderating the growth rate of household debt rather than reducing the total amount of household debt itself.
Arithmetically, the goal can be achieved by reducing the household debt ratio by more than 1.8 percentage points over the next four years until the end of 2027. If we limit the achievement period to the current government’s term, there are approximately three years remaining.
The government emphasized “policy mortgage speed control” as the foremost approach for managing household debt. Specifically, relevant agencies, including the Ministry of Economy and Finance, the Financial Services Commission, and the Ministry of Land, Infrastructure and Transport, will operate a “Housing Policy Financial Consultation Group” to manage the supply speed of policy mortgages and other aspects based on the household debt situation.