The debt of the public sector of South Korea is soaring mainly due to the South Korean government’s health insurance policy and nuclear power phase-out policy.
For instance, the National Health Insurance Service (NHIS) is predicted to post a net loss of five trillion won this year whereas it recorded a net profit of 400 billion won two years ago. During the past two years, the national health insurance was expanded to cover MRI expenses, those for abdominal ultrasonography and hospitalization costs applied to two-person and three-person rooms.
At present, the organization’s debt is snowballing whereas its assets are showing little change. Specifically, the debt jumped from 7.9 trillion won to 13.1 trillion won from 2017 to this year and is estimated to reach 16.7 trillion won in 2023.
Likewise, the debt of Korea Electric Power Corp. (KEPCO) and its subsidiaries increased 11 percent to 126.5 trillion won this year alone. KEPCO’s debt-to-equity ratio is forecast to rise from 112 percent to 154 percent from this year to 2023.
This is because South Korea is reducing coal-based thermal power generation, not building any new nuclear power plant, and raising the ratio of LNG- and renewable energy-based power generation, which has resulted in higher power generation costs. Besides, factors such as fuel costs and exchange rate fluctuations were added to cause KEPCO’s annual operating profit to drop from 12.16 trillion won to negative 208 billion won from 2016 to last year.
Things are likely to get worse down the road. As is well known, South Korea is one of the fastest-aging societies in the world. There, the ratio of senior citizens’ medical expenses to overall medical expenses exceeded 40 percent last year and their medical cost burden is likely to continue to increase along with the frequencies of chronic diseases. When it comes to KEPCO, progressive electricity prices are scheduled to be revised and an increase in labor cost is likely to result from more permanent and less temporary employment. In short, its business performance is predicted to deteriorate over time.
The NHIS and KEPCO are just two of many examples. Last year, the total debt of 39 local public institutions topped 479 trillion won after a continuous increase. It is estimated to reach 586 trillion won in four years with the government failing in its policy and the institutions failing in efficiency and fiscal stability enhancement.
The victim of the soaring debts is the general public in the end. Public institutions incapable of dealing with their own debts ask the government for help, and then the government spends taxpayers’ money, and then, in turn, the taxpayers’ living standards are adversely affected. More and more fiscal resources are required to be input due to such debt-stricken organizations and the general public is forced to pay more and more taxes. At present, the interest coverage ratio of Korea East-West Power, Korea Midland Power, the Korea District Heating Corporation, and so on is below 1.0.