Government Debt Including Provisions Reaches 91.4% of GDP... Far Exceeding OECD Average

[Sejong=Asia Economy Reporter Son Seonhee] A research study has revealed that the government debt ratio, including public pension liabilities such as civil servant and military pensions, has already exceeded 90% of the Gross Domestic Product (GDP).

According to a report authored by Park Hyungsoo, director of the private think tank ‘K-Policy Platform’ and visiting professor at Yonsei University, when including civil servant and military pension liabilities, the government debt ratio rose to 91.4% of GDP (as of the end of 2019).

Government debt statistics are classified into national debt (D1), which combines central and local government debts; general government debt (D2), which adds non-profit public institution debts to D1; and public sector debt (D3), which further includes non-financial public enterprise debts to D2. For international comparisons, D2 is generally used, but Director Park included public pension liabilities in this figure. The OECD’s published general government debt (D2) ratio excludes public pension liabilities.

Liabilities refer to the present value of estimated future pension payments. The civil servant and military pensions are already depleted, and a shortfall amounting to trillions of won annually is covered by taxes according to the law. Director Park stated, "According to the 2019 fiscal year national settlement report, the size of civil servant and military pension liabilities reached 944.2 trillion won," adding, "While it may be reasonable to exclude liabilities in international comparisons as other countries do, they should be included from the perspective of accurately identifying and managing the debt burden that will fall on future generations." He emphasized that Korea’s unique characteristic, where pension liabilities account for nearly half of the national debt, must be reflected, unlike other countries.

He cited ‘structural factors’ as the reason behind the rapid increase in national debt, noting, "The ‘crocodile’s mouth’ phenomenon began occurring from 2019, before the outbreak of COVID-19." The ‘crocodile’s mouth’ refers to a situation where expenditures sharply increase while revenues slightly decrease or stagnate, causing the revenue and expenditure graphs to resemble an open crocodile’s mouth.

Regarding claims that debt can be increased further due to the low interest rate environment, Director Park dismissed this by stating, "It is not only that government bond interest rates have fallen, but economic growth rates have also declined, so this cannot be a fundamental reason."