[Exclusive] Seoul City Local Bond Balance 8 Trillion Won... The Future Is the Issue

Last Year's Issuance Amount 3.18 Trillion Won
Doubled in the Last 2 Years

Funding for SOC and Disaster Relief
Concerns Over Fiscal Sustainability Amid Population Decline

[Asia Economy Reporters Lim Cheol-young, Lee Hyun-joo] The outstanding balance of local bonds issued by Seoul City to raise funds needed for social overhead capital (SOC) such as roads and railways, as well as disaster relief funds, has exceeded 8 trillion won. In particular, over the past two years, the issuance of local bonds has doubled, exceeding the original plan, increasing the city's financial burden.

On the 30th, Asia Economy obtained data through the office of Kwon Young-se, a member of the National Assembly's Public Administration and Security Committee from the People Power Party. The scale of Seoul City's local bond issuance from 2018 to 2020 (before approval by the Seoul Metropolitan Council) was rapidly increasing, recorded at 377.6 billion won, 2.5119 trillion won, and 3.1817 trillion won respectively. In the medium-term financial plan released at the end of 2017, the issuance scale for both 2019 and 2020 was in the 800 billion won range, but it was exceeded for two consecutive years. Compared to the plan, issuance in 2018 was short by 470 billion won, but in 2019 and 2020, it exceeded the plan by 110 billion won and 160 billion won respectively. Accordingly, the annual interest burden also increased from 58.7 billion won in 2018 to 116.2 billion won in 2019 and 150.7 billion won in 2020.

The outstanding balance of local bonds, which was around 3.8 trillion won in 2018, more than doubled to 8.14 trillion won in 2020 within two years. Considering that Seoul City's budget this year is about 41 trillion won, this amount accounts for about 20%. The Ministry of the Interior and Safety issues a 'caution' at the basic management stage when the ratio of local bonds to the budget exceeds 25%.

The items requiring local bond issuance are also increasing. In 2018, Seoul City issued local bonds for urban railway bond purchases, subway construction, and compensation for the restoration of Pungnap Toseong. In 2019, it invested 1.3677 trillion won in urban railway bond purchases and raised more than 800 billion won for light rail construction, public rental housing purchases, and compensation for long-unexecuted urban parks. Urban railway bond purchases are increasing despite annual repayments of several hundred billion won. Even considering that this is a temporary infrastructure construction fund, it inevitably acts as a burden on financial management. Last year, an additional 150 billion won was added to the disaster management fund item aimed at responding to the COVID-19 economic downturn.

Lee Sang-yong, a research fellow at the Fiscal Performance Research Institute, said, "Local bonds should originally be issued only for strict investment purposes," adding, "Currently, fiscal expansion policies are being implemented under the view of a special national disaster situation, but this can be seen as moral hazard by local governments or the central government." In response, Seoul City stated, "Fund formation through the Local Government Fund Management Act is possible," asserting that there is no legal problem.

Voices expressing concern about fiscal soundness are growing. Eom Tae-ho, a professor of public administration at Yonsei University, said, "As a macro indicator itself, (local bonds) are not a big problem or a cause for concern about soundness in the current situation," but added, "Considering comprehensive factors such as rapid population decline leading to local extinction, decentralization, balanced development, and local education finance, it will eventually become a problem." Cho Ki-hyun, head of the Local Finance and Economy Office at the Korea Institute of Local Administration, said, "Given the uncertain revenue conditions such as local taxes, acquisition tax, and real estate-related taxes, it is a matter to be viewed cautiously that Seoul City, which has many public enterprise debts, issued more than 3 trillion won in local bonds."

This content was produced with the assistance of AI translation services.