Korea‘s national debt surges to $822 bn

[Graphics by Song Ji-yoon]

South Korea’s national debt surged to a record high of 1,126 trillion won ($822.2 billion) in 2023, surpassing the 50 percent mark relative to the nation’s gross domestic product (GDP) for the first time.

According to the annual national financial report for 2023 that was approved at the Cabinet meeting on Thursday, the nation’s national debt—including debt from both the central and local governments—rose by 59.4 trillion won year-on-year to 1,126 trillion won. The national debt-to-GDP ratio increased by 1 percentage point during the same period to hit 50.4 percent. This is the first time since 1982, when relevant statistics were first compiled, that the national debt exceeded 50 percent of GDP. The national debt remained in the 600 trillion won range between 2016 and 2018 but rapidly increased due to expansionary fiscal policies during the Moon Jae-in administration, such as relief funds during the Covid-19 pandemic.

The fiscal balance, which reflects the government’s actual fiscal position, showed a deficit of 87 trillion won. The fiscal deficit-to-GDP ratio was 3.9 percent, failing to meet the fiscal goal set by President Yoon Suk Yeol, who had pledged to limit the fiscal deficit in the fiscal balance to within 3 percent of GDP annually.

Concerns are mounting after the new record was set, particularly due to tax benefit promises made during election campaigns for lawmakers, and uncertainty about fiscal soundness in 2024 is also on the rise. According to an analysis by the Maeil Business Newspaper of the 40 major tax reform policies introduced by the political circle and the government in 2024 to date, only 10 policies included tax revenue estimates. The Democratic Party of Korea, which nabbed a majority of seats in the April 10th general election, pledged several policies that entail large-scale spending, such as providing financial support to all citizens, offering 100 million won loans to newlyweds, and halving tuition fees for private universities, that further raises concerns about whether the government‘s fiscal policy is sound.

“When the nation faces poor fiscal soundness as now, efforts to set spending limits and focus on essential areas are essential to reduce unnecessary expenditures,” Korean Association of Public Finance Chair Lee Chul-in said.