IMF Fiscal Monitor Report Warns:
Government Debt Ratio to Reach 54.5% This Year,
Surpassing Average of 11 Non-Reserve Currency Countries
The Yoon Suk-yeol administration has tightened fiscal policy over the past three years, prioritizing fiscal soundness. However, projections now indicate that the increase in South Korea's national debt, relative to the size of its economy, will surpass the average of 11 non-reserve currency countries.
According to the latest edition of the International Monetary Fund (IMF)'s Fiscal Monitor report released on May 11, South Korea's general government debt-to-GDP ratio is projected to reach 54.5% this year. This would, for the first time, exceed the average of the 11 non-reserve currency countries, which stands at 54.3%.
The general government debt figure includes not only national debt (central and local government debt) but also the liabilities of non-profit public institutions. This broader measure is used internationally to compare fiscal soundness across countries.
As recently as 2016, the final year of the Park Geun-hye administration, South Korea's debt ratio was 39.1%, lower than the non-reserve currency average of 47.4%. However, following the COVID-19 pandemic, rapid increases in fiscal spending and welfare expenditures have driven the debt ratio sharply higher since 2020.
This trend is expected to continue at a rapid pace, with the debt ratio projected to reach 59.2% by 2030. This represents an increase of 4.7 percentage points over five years, the second highest among non-reserve currency countries after the Czech Republic. In the same year, the average for non-reserve currency countries is expected to be 53.9%, meaning South Korea will exceed this by more than 5 percentage points.
The IMF predicts that in some non-reserve currency countries?such as New Zealand, Norway, Sweden, and Iceland?the debt ratio will actually decline in the coming years. In contrast, South Korea is expected to see a sharp increase in pension and health insurance expenditures due to population aging.
South Korea's projected debt ratio for 2030 remains lower than that of major reserve currency or quasi-reserve currency countries such as the United States (128.2%), Japan (231.7%), and the United Kingdom (106.1%). In reserve currency countries like the United States, or quasi-reserve currency countries that use widely accepted international currencies such as the euro, yen, or pound, national debt ratios surged during wartime. However, the burden of a high debt ratio is relatively smaller for these countries because they can print their own currency to repay national debt.
In contrast, non-reserve currency countries like South Korea face lower demand for their bonds and less favorable interest rate conditions. As a result, they generally need to maintain lower debt ratios to ensure fiscal stability.
The report points out that the recent economic slowdown, combined with the spread of tax cut and welfare pledges in the political arena, could weaken fiscal capacity and increase pressure for further debt growth. Central government debt has already surpassed 1,200 trillion won this year, and additional supplementary budgets, such as the second and third rounds since the launch of the new administration, could push the total beyond 1,300 trillion won.
The IMF's debt ratio projection for this year has been revised upward from its October 2023 estimate, increasing from 54.3% to 54.5%. While the IMF did not disclose its calculation methodology, the revision is believed to reflect the recent economic slowdown and the government's shift toward fiscal expansion.
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