Restructuring of public institutions gains momentum to curb soaring national debt

An aerial view of Government Complex Sejong / Yonhap

State-run enterprises and other public institutions may undergo sweeping restructuring, including possible mergers and shutdowns, as the government seeks to rein in mounting debt, experts said Monday.

They said the national debt-to-GDP ratio is projected to climb sharply during President Lee Jae Myung’s term, from 49.1 percent in 2025 to 58 percent by 2029.

The warning comes on the heels of the Lee administration’s record-breaking budget proposal on Friday, which would raise next year’s government spending by 54.7 trillion won to a total of 728 trillion won ($522.53 billion).

The 54.7 trillion won is the largest year-on-year increase in history, surpassing the 49.7 trillion won increase in 2022 under the Moon Jae-in administration, which faced criticism for excessive fiscal expansion.

Despite growing concerns over fiscal discipline, the Lee administration argues that aggressive government spending is necessary to support economic recovery.

At the same time, it has pledged to cut costs in other areas, particularly through reforms targeting publicly run institutions, which Lee has called “excessive in number.”

As of 2024, Korea had 331 public institutions, including 36 state-run companies.

“Under the current fiscal circumstances, a drastic restructuring of state-run companies cannot be ruled out,” said Shin Se-don, professor emeritus of economics at Sookmyung Women’s University.

Shin noted that the combined debt held by public institutions surged by approximately 92 percent over the past decade — from 386.6 trillion won in 2010 to 741.5 trillion won in 2024.

The professor also pointed to lax management practices across public institutions, along with rising wages and other compensation.

The average salary for heads of public institutions jumped 26 percent from 152 million won in 2010 to 191.17 million won in 2024. Average employee compensation also rose by 22 percent during the same period.

A researcher at a private economic think tank, speaking on condition of anonymity, said restructuring could help enhance operational efficiency.

“It may involve merging institutions with overlapping responsibilities or phasing out underperforming entities,” the researcher said.