National Debt Growing at Alarming Pace
The Korea Economic Research Institute of the Federation of Korean Industries said on Feb. 17 that South Korea’s national debt-to-GDP ratio is estimated to increase 18.8 percentage points from 2020 to 2026, the highest among the 17 non-key currency countries in the OECD.
“The ratios of Canada, Iceland and Hungary, which showed the highest ratios in the group in 2020, are estimated to fall 1 percentage point on average in that period,” it said, adding, “South Korea’s ratio is likely to rise from 47.9 percent to 66.7 percent and its ranking in the group is likely to change from ninth to third behind Canada and Israel.”
According to the institute, the Turkish and South Korean governments’ expenditures have been increased due to COVID-19 and the increased expenditures are likely to be maintained at least until 2026 whereas the other non-key currency countries are planning to reduce their expenditures in the interest of fiscal soundness.
“Assuming that the 2020 and 2021 expenditures in relation to GDP are 100, South Korea’s and the other non-key currency countries’ 2022 to 2026 expenditures are estimated at 98.6 and 91, respectively,” it said, continuing, “In addition, in that period, South Korea’s overall fiscal deficit-to-GDP ratio is estimated to decrease 12 percent whereas the average estimate is 66.4 percent for the others.”
The institute pointed out that South Korea’s national debt is increasing too fast and its fiscal soundness needs to be managed better with regard to rapid population aging, excessive public enterprise debts, and so on with its fiscal deficit already continuing for three years.
In the meantime, South Korea posted a trade deficit of US$4.89 billion last month to remain in the red for the second consecutive month. The back-to-back deficit occurred for the first time since 2008 and the deficit is South Korea’s largest monthly trade deficit.