Korea's debt-to-GDP ratio grows 2.5 times faster than advanced economies'

By Yi Whan-woo

The ratio of national debt to gross domestic product (GDP) in Korea is rising fast, and it will grow more than 2.5 times as much as the combined average of the ratios of the world's 35 advanced economies between 2017 and 2022, a government source said Sunday on condition of anonymity.

Citing data from the International Monetary Fund (IMF), the source said that the national debt-to-GDP ratio of Korea will increase from 40.1 percent to 54.1 percent during the 2017-2022 period.

The 14-percent increase is comparable to a 5.5-percent increase among the world's 35 richest countries ― from 71.6 percent to 77.1 percent ― in terms of the combined average national debt-to-GDP ratio for the cited period.

“The ratio of Korea is still lower than that of the advanced economies, but it is accelerating at much faster level,” the source said.

The source noted that the ratio curve for the 35 advanced countries has been flattening after peaking in 2020 at 82.8 percent, whereas the curve for Korea on the other hand has been on an upward trajectory.

The government source attributed the sharp rise in Korea's national debt to the pandemic stimulus policy embraced by the previous Moon Jae-in administration.

In July, the current Yoon Suk-yeol administration announced a plan to shift to a belt-tightening mode in an attempt to reduce the national debt to pre-pandemic levels.

Correspondingly, the IMF expects the national debt of Asia's fourth-largest economy will be worth 57.7 percent of its GDP in 2027, slightly down from its previous forecast of 59.8 percent.

But it appears that the Yoon administration's belt-tightening policy will fall short of curbing the increase in the national debt-to-GDP ratio in the longer term, as this increase is also driven by Korea having the world's lowest fertility rate and being a rapidly-aging society.

The IMF defines the magnitude of the national debt as the sum of debt securities and loans from central and regional governments, plus those from public organizations.

Under the same definition, the Organisation for Economic Co-operation and Development (OECD) forecast Korea's national debt-to-GDP ratio to reach 150.1 percent in 2060.

The Korea Development Institute (KDI), a state-run think tank, and the National Assembly Budget Office each view the scope of national debt to include more narrowly only debt securities and loans from central and regional governments.

Nevertheless, the ratio is expected to be 144.8 percent in KDI's forecast and 161 percent in the National Assembly Budget Office's projection for 2060.

“The numbers suggest Korea's burden from debt will become about three times larger from 2022,” another government source, said, also on condition of anonymity.