Government taps central bank credit but delays defense payments

(News1)

South Korea’s government failed to disburse part of its defense budget on time last year, even after tapping short-term credit from the central bank to cover temporary funding gaps, according to data released Wednesday.

The data submitted by the Bank of Korea to Park Seong-hoon, a member of the National Assembly’s Strategy and Finance Committee, showed that the government borrowed 5 trillion won ($3.46 billion) from the central bank in December under a temporary loan facility designed to bridge timing mismatches between revenues and expenditures. The borrowing came just three months after the government had drawn 14 trillion won in September.

Under the facility, the government can borrow from the central bank on a short-term basis and repay the funds once revenues are collected — a mechanism often likened to a personal overdraft account used to meet cash needs as they arise.

Frequent use of the facility indicates recurring shortfalls in fiscal inflows relative to spending needs. After borrowing 14 trillion won in September, the government repaid a total of 14.6 trillion won the following month, clearing its balance. However, it returned to borrowing two months later, leaving an outstanding balance of 5 trillion won in December.

As mismatches between fiscal execution and tax revenue flows widen, reliance on the central bank’s temporary credit line tends to increase. The government borrowed a cumulative 164.5 trillion won from the BOK last year, the second-largest annual total on record after 173 trillion won in 2024.

Despite resorting to short-term borrowing, the government was unable to execute parts of its ministerial budgets on schedule, exposing weaknesses in fiscal management, said Park.

The Ministry of National Defense had yet to disburse around 1.3 trillion won in defense-related payments owed to the armed forces and defense contractors by the end of last year.

“Failing to pay even defense spending on time represents a serious breakdown in fiscal management,” Park said.