Debt-to-GDP Ratio Rising Fast
The Korea Economic Research Institute announced on Sep. 2 that the South Korean government’s debt-to-GDP ratio rose at an annual average of 14.4 percent from 2000 to 2018 and the rate of increase is the third-highest behind those of Argentina (29.2 percent) and China (17 percent).
The institute said that South Korea’s future fiscal soundness can be impaired with the aging of its population more rapid than anywhere else in the world. According to the International Monetary Fund, the South Korean government’s potential debt is 159.7 percent of the country’s GDP whereas the average of 42 countries is 77.4 percent. The South Korean government’s potential debt-to-GDP ratio is second only to Brazil’s (248.1 percent) and is higher than those of Italy (88 percent) and Argentina (77.9 percent), which are exposed to the possibility of a fiscal crisis.
The institute expressed concerns over South Korean households’ soaring debts, too. “South Korea’s household debt-to-GDP ratio reached 97.7 percent last year, the seventh-highest among 43 countries, and the debt increased at an annual average of 9.8 percent from 2000 to 2018, the 15th-fastest in the world,” it explained, adding, “Besides, South Korea showed the steepest increase among the 10 countries with the highest household debt ratios and its debt service ratio reached 12.45 percent last year, the highest since records began in 1999.”
South Korea’s corporate debt-to-GDP ratio, in the meantime, rose from 98.3 percent to 101.7 percent, the 16th-highest in the world, in 2018 whereas the average of 43 countries fell during the same period. The ratio of South Korean companies with an interest coverage ratio of less than 1.0 rose from 32.3 percent to 35.7 percent last year.
The corporate debt situations are likely to get even worse this year. The combined operating profit of KOSPI-listed companies fell 37.1 percent from a year ago in the first half of this year. On the contrary, the ratio of financially vulnerable companies with a debt-to-capital ratio of over 200 percent increased by 3.5 percentage points in six months to 17.3 percent.