ed 'Hidden debt'

Time to chart new fiscal management plan

It’s alarming to hear that our national debt reached 774 trillion won as of the end of last year if liabilities for pensions to be provided to former and incumbent civil servants and soldiers are included.

Of course, the pension liability ― tallied at 342 trillion won ― is not a new feature of national debt but is included statistically in accordance with changes in government accounting standards. Moreover, liabilities on pensions are not usually regarded as national debt in foreign countries.

However, given that total government expenditure on pensions is a obligation to be fulfilled in the future, the pension liability can be categorized as ``hidden or potential debt.’’

At the end of last year, Korea’s national debt was officially estimated at 420 trillion won including debt owed by local governments, which accounted for 34 percent of the country’s gross domestic product (GDP).

The Ministry of Strategy and Finance should be praised for changing its accounting rules in that it will pave the way for the government to grasp the severity of potential national debt in advance and enable the country to buttress itself against any future fiscal debacle. At the same time, transparency and confidence in government data will get a big boost through the introduction of the latest international accounting rules.

The problem is that pension liability has continued to swell significantly because the government has not taken measures to rein in the explosive growth of pensions. In fact, the pension liability grew 36 percent last year alone and took up about 28 percent of GDP. Over the past four years, the government’s pension liability expanded by 91 trillion won.

More worrisome is the fact that our actual national debt will surpass 1,200 trillion won if debt owed by the country’s 286 public corporations and agencies, estimated at about 463 trillion won, is included. The hike in public sector debt is largely attributed to the fact that state companies shoulder the burden on behalf of the government in many cases. For example, the Korea Deposit Insurance Corp. saw its debt swell by 13.3 trillion won due to its support for insolvent savings banks that have dealt a fatal blow to ordinary people.

There are several reasons we should not be complacent with respect to national debt. First of all, the rising pace of debt has been spectacular since President Lee Myung-bak took office. In particular, public sector debt jumped by a whopping 214 trillion won during the four years of the Lee administration owing to large government funded projects.

Soaring demand for welfare, coupled with an aging population, is also causing a sharp rise in government expenses. In the lead-up to the Dec. 19 presidential election, the political circle should refrain from making sugar-coated campaign pledges while ignoring the depleting state coffers.

The government, for its part, needs to chart a new fiscal management plan that would also include ways to address the debt problem in state companies. The government, in cooperation with the National Assembly, will have to consider imposing legal restrictions on national debt, if necessary.

What is clear is that we must not hand the current bloated debt over to future generations.