By Cho Jin-seo
Staff reporter
The interest payments on national debts will amount to 20.2 trillion won this year as the government continues to borrow more to fund increasing public spending.
The amount is as big as the yearly budget of Seoul's city government, and comes down to 413,000 won per person, according to the Ministry of Strategy and Finance.
The interest burden on the national budget has become three times as heavy over the past seven years. Much of it is related to the coupons attached to the treasury bonds.
As of December 2009, outstanding government bonds amounted to 337.5 trillion won, up from 103.1 trillion won in 2002. The total government debt, including bonds and direct borrowing, came to 359.6 trillion won. This year, it is expected to grow to around 400 trillion won. The government says that Korea is not like Greece, as the debt is still at a manageable level considering its robust economic growth.
Korea's national debt accounted for 33.8 percent of its gross domestic product (GDP) in 2009, which is much lower than the OECD average of 90 percent.
"Increased interest costs in absolute terms are unavoidable when the national debt is growing. But when we see it in comparison to the GDP, our economic soundness is better than other countries and will improve in the future," a ministry official said.
Nevertheless, the pace of the accumulating debt appears to be alarming. Bond issues have been increasing even before the financial crisis in 2008 and interest payments have accordingly grown. The government paid 7 trillion won in interest in 2003. The amount has snowballed yearly to 9 trillion won in 2004, 11.4 trillion won in 2006 and 14.4 trillion won in 2009.
Last year, more than 90 percent of the interest payments were related to bonds. Direct borrowing decreased during the same period to 5.4 trillion won in 2009 from 20.7 trillion won in 2002. The growing debt can lead Korea into a vicious circle if the government fails to balance the budget. With the national balance in a deficit, the government has to issue more new bonds in the market in order to raise the money to pay the interest on old bonds. The government is expected to post a fiscal deficit of 15.6 trillion won this year, compared with the previous year's deficit of 17.6 trillion won.
The ministry recently lowered its estimation of the national debt for this year from 407.1 trillion won to 390 trillion won.