South Korea’s national debt reached a record $823.6 billion last year, with the debt-to-GDP ratio exceeding 50% for the first time, indicating a faster increase in debt compared to economic growth.
On Apr. 11, The Ministry of Economy and Finance reported that the country’s national debt in the previous year rose by 59.4 trillion won ($43.4 billion), reaching a total of $823.6 billion.
For the first time in history, the ratio of national debt to gross domestic product (GDP) has exceeded 50%, at 50.4%. Due to the COVID-19 crisis, the national debt ratio had already surpassed 40% in 2020, and it has now increased to over 50% in just three years.
The government approved the financial report for the previous year during a cabinet meeting chaired by Prime Minister Han Duck-soo on Apr. 11. The central government’s debt was recorded at $798.6 billion and the local government’s debt was at $24.9 billion.
It took nine years for Korea’s national debt ratio to increase from over 30% in 2011 to the 40% range. However, the time it took for the ratio to rise from the 40% range to the 50% range was reduced to one-third. This indicates that the national debt is increasing at a faster rate compared to economic growth.
Due to low birth rates and stagnant population growth in the country, the national debt has risen significantly, resulting in a per capita national debt of $16,038 last year. This amount is an increase of $876 from the previous year’s $15,161.
Last year saw a record high in revenue shortfall, with tax revenue decreasing by $41.2 billion, worsening fiscal soundness. The consolidated fiscal balance, which shows the difference between total revenue and total expenditures, recorded a deficit of $26.8 billion, equivalent to 1.6% of GDP.
When the surpluses from the four major social security funds, including the National Pension and Employment Insurance, were excluded, the operational fiscal balance showed the actual state of the country’s finances. It revealed a deficit of $63.5 billion, or 3.9% of GDP. This exceeded the fiscal rule standard promoted by the Yoon Suk-yeol administration, which aims for an operational fiscal deficit ratio of less than 3% relative to GDP.
Director of the Ministry of Economy and Finance, Kim Myung-joong, stated “Despite the decrease in tax revenues, there was an inability to significantly reduce expenditures due to the need for economic recovery. This resulted in a deficit in the operational fiscal balance.”
