ED Snowballing national debt

Pork barrel projects feared to hurt fiscal health

South Korea's national debt has continued to snowball, and according to the Ministry of Economy and Finance, Tuesday, it is expected to reach 965.9 trillion won ($84.7 billion) by the end of the year. This estimate includes the first extra budget bill of 2021 which has already been submitted to the National Assembly.

Last year, the state debt surged by 41.7 trillion won due to four large-scale supplementary budgets drawn up amid the persisting COVID-19 pandemic. Experts even forecast that it will surpass 1,000 trillion won by the end of the year, should this year's extra budgets amount to the same level as those from 2020.

The state debt has risen by around 400 trillion won over the past five years. It stood at 626.1 trillion won in 2016 when the Moon Jae-in administration was inaugurated. Worse still is that the debt has been growing more rapidly as a proportion to gross domestic product (GDP). This is expected to surge to 48.2 percent in 2021 from 39.3 percent in 2016; and may likely exceed 50 percent this year should there be several extra budgets.

Even the state-run Korea Institute of Public Finance (KIPF) has cautioned that the soaring state debt will put upward pressure on interest rates and undermine fiscal soundness. This risk is all the more serious for countries that use their own currencies other than major reserve currencies such as the U.S. dollar and the euro, according to the KIPF.

Policymakers seem to believe the state debt has yet to reach a dangerous level. As a matter of fact, the nation's external debt ratio has stayed at the stable 60 percent level recommended by the International Monetary Fund (IMF), lower than that of other major industrialized countries. But this does not necessarily mean that we don't have to worry about the growing debt.

For one thing, the nation's expenditure on welfare programs will increase rapidly in the next decade, prompted by the retirement of baby boomers ― those born between 1955 and 1963. In addition, the provision of relief funds to cope with the pandemic will also likely rise steadily.

What matters most is that the political sector is engrossed in efforts to push pork barrel projects ahead of the mayoral by-elections in Seoul and Busan in April and the presidential poll in March next year. The MOFE submitted a revision designed to keep the state debt ratio within the 60 percent margin to the National Assembly last year.

But the Assembly has yet to start deliberating on the revision bill. The ruling Democratic Party of Korea has been expressing concern that it will have an adverse impact on its bids to allot more money to tackle the pandemic. Lawmakers of the DPK and other parties should discuss the revision beyond their partisan interests. Pork barrel politics will leave the next generation with a huge amount of national debt.