Lee Yeon-woo is a financial journalist at The Korea Times. Her wide range of reporting includes policies, macroeconomics, stock market, companies and even crypto. She is passionate about connecting the dots in Korean finance and making it easier for foreign nationals to understand. Based on her previous experience as a national reporter, she also has a keen interest in social issues within the sector, including gender equality and ESG. Your tips and insights are always appreciated. You can send them to yanu@koreatimes.co.kr.
Korea's debt-to-GDP ratio expected to reach 58% by 2028: IMF
Ruud De Mooij, assistant director of the International Monetary Fund's (IMF) Fiscal Affairs Department, speaks during a press briefing on the "Fiscal Monitor" report during the 2023 Annual Meetings of the World Bank Group and IMF in Marrakesh, Morocco, Oct. 11. Courtesy of IMF
By Lee Yeon-woo
Korea's debt-to-gross domestic product (GDP) ratio is projected to approach 58 percent by 2028, placing it as the second-highest among non-reserve currency nations. The increase is also the most rapid, underscoring the urgent need for the government to enhance fiscal stability.
According to the International Monetary Fund's (IMF) recent "Fiscal Monitor"report, Korea's ratio of general government debt (D2) to GDP is forecast to reach 57.9 percent by 2028. Among the 11 non-reserve currency nations, this is second only to Singapore, which has a staggering 170.2 percent.
Non-reserve currency nations refer to countries that are classified as advanced by the IMF but do not hold any of the eight primary reserve currencies, such as the dollar, euro and yen.
General government debt, often referred to as D2, includes the liabilities from nonprofit public institutions on top of the standard national debt, or D1, which captures the liabilities of both central and local governments. Global institutions like the IMF and the Organization for Economic Cooperation and Development (OECD) use the D2 metric primarily when comparing debts among countries.
Korea's D2-to-GDP ratio has been on a steady upward trajectory. From 39.7 percent in 2014, it rose to 40.8 percent in 2015 and surged further to 51.3 percent in 2021. As a result, among the non-reserve currency nations, Korea's rank escalated from eighth place in 2014 to sixth in 2015, and then to fourth in 2021.
While Korea's 2028 debt-to-GDP ratio may seem modest compared to the 134.3 percent average of the seven major economies, it's crucial to note that non-reserve currency nations need to be extra cautious in fiscal management, because their bonds and similar assets typically attract less demand compared to those of reserve currency nations.
This is particularly true for Korea, which has recorded the most rapid increase in debt. By 2028, according to the IMF, Korea and Hong Kong are projected to see the highest growth rates among non-reserve currency countries.
"It's important for countries to rebuild fiscal buffers following the pandemic," Krishna Srinivasan, director of the IMF's Asia and Pacific Department, said at a press meeting during the 2023 Annual Meetings of the World Bank Group and IMF in Marrakesh, Morocco, Friday.
"I can give an example where in the case of Korea, they started retrenching fiscal support in the second half of 2022, and they're continuing with that in 2023. And we think that's the right thing to do because you want to build fiscal buffers so that debt does not become an issue down the road."
He told Korean reporters in a separate meeting that the fiscal rules the Korean government is trying to adopt would be a good framework. However, the government's proposal has yet to gain approval from the National Assembly. The fiscal rules aim to keep the fiscal deficit within 3 percent of the GDP.