[Interest Rate Hike Risk] This Year’s National Debt Interest Alone 14.4 Trillion Won... Need for Total National Debt Management

[Sejong=Asia Economy Reporter Son Seon-hee] If interest rate hikes become a reality, the government's burden, which has rapidly increased its debt, will also grow. As of the end of last year, the government's confirmed debt to be repaid reached 850 trillion won, and it is highly likely to exceed 900 trillion won this year and surpass 1,000 trillion won next year. In particular, government debt is borne not by those who increased it but by future generations. This is why institutional improvements to prevent a rapid increase in debt are even more urgent.

The burden of government debt can also be seen in the interest payments made annually. According to the Ministry of Economy and Finance on the 14th, the interest payment on government bonds included in this year's supplementary budget is 14.59 trillion won. This is 3 trillion won more than the budget of 11.58 trillion won allocated last year. This budget is to cover the interest on government bonds, which make up the majority of government debt. The government estimates the required amount assuming an interest rate higher than the market rate, so if interest rates rise, the interest burden will increase.

Since the beginning of the year, volatility in government bond yields has expanded, leading to forecasts that more interest on government bonds will need to be paid this year. Recently, the 10-year government bond yield exceeded 2%, and it is expected to continue its high-level trend in the second half of the year.

National debt is also rapidly increasing. According to the historical national debt (D1) statistics from the National Statistical Portal (KOSIS), the national debt, which was 626.9 trillion won at the end of 2016, swelled to 846.9 trillion won by the end of 2020. The ratio of national debt to Gross Domestic Product (GDP) also exceeded 40% for the first time last year.

Global credit rating agency Moody's recently rated South Korea's credit as stable but issued a warning that the national debt is at a "historically high level."

Despite concerns from international rating agencies, the government's willingness for expansionary fiscal policy is unlikely to wane. With the presidential election next year, various populist pledges may increase the fiscal burden further. There is no means to control the total amount of debt. Since last year, Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki has repeatedly stated, "We will strive to legislate fiscal rules," but related bills have been dormant in the National Assembly for several months.

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