Due to Various Policy Projects

The government and special bond balance of South Korea is showing a particularly conspicuous increase, which is attributable to a decrease in redemption rather than an increase in government bond issuance.
The total value of outstanding government bonds and special bonds has increased sharply this year due to to a drop in redemption of maturing bonds.

 

The total value of outstanding government bonds and special bonds, which are directly or indirectly guaranteed by the South Korean government, recently exceeded 1 quadrillion won (US$900 billion) for the first time ever. This year, the amount of outstanding bonds increased sharply due to a decrease in redemption rather than an increase in bond issuance.


The Korea Financial Investment Association announced on August 13 that the total value of outstanding government bonds and special bonds amounted to 1,000.2 trillion won on August 7. The figure broke into 671.64 trillion won (US$604.4 billion) in government bonds and 328.57 trillion won (US$295.7 billion) in special bonds. The total balance had been approximately 427 trillion won (US$384.3 billion) 10 years ago, but exceeded 800 trillion won (US$720 billion) in late 2014, reached 879 trillion won(US$78.3 billion) at the end of 2015, and rose to 953 trillion won (US$857 billion) late last year.

The government bond balance increased rapidly this year whereas the special bond balance has edged down. Outstanding government bonds increased by more than 56 trillion won this year, larger than the 45 trillion won increase during the same period of 2017. This is because of a significant decline in national debt repayment rather than an increase in government bond issuance. Newly issued bonds totaled 83 trillion won, while redeemed bonds added up to 27 trillion won from January 1 to August 7 this year. The corresponding figures for 2017 were 86 trillion won and 41 trillion won, respectively. The special bond issuance and redemption were 34 trillion won and 44 trillion won from January 1 to August 7 this year, respectively.

The special bond balance, which increased a lot during the past Lee Myung-bak administration, has remained steady for years amid public-sector restructuring. For example, it was 334 trillion won, 337 trillion won, and 338 trillion won at the end of 2015, 2016, and 2017, respectively. The current balance is 329 trillion won. The special bond balance is likely to remain steady or show a slight decrease for the time being.

Meanwhile, the government bond balance is expected to be affected by the government’s tax revenue for national projects for job creation, welfare expansion, etc. According to the Ministry of Strategy & Finance, the national tax income increased 19.3 trillion won from a year ago to 157.2 trillion won in the first half of this year. The national tax income increased 22.8 trillion won in 2017 as well.
 

According to experts, the South Korean government has been reducing the amont of redemption, in spite of the high national tax income, due to various policy projects. In addition, it is related to the need to stimulate the economy amid deepening trade disputes between the U.S. and China, adverse job market conditions, rising interest rates, etc.

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