Short-term foreign debt ratio rises 1.2%p in Q1... Government evaluates as "favorable"

[Sejong=Asia Economy Reporter Kim Hyun-jung] Although external debt soundness indicators such as the short-term external debt ratio slightly deteriorated in the first quarter of this year, the government assessed the situation as "relatively favorable." Regarding the significant increase in external debt to be repaid in the future, raised through overseas capital markets, the main factor was cited as the "positive overseas perception of our fundamentals."

According to the "International Investment Position (Provisional) as of the end of March 2021" released by the Bank of Korea on the 21st, South Korea's external debt as of the end of the first quarter of this year was $565.9 billion, an increase of $21 billion compared to the end of the previous quarter. External debt refers to funds raised by the government or private companies from foreign governments and financial institutions, which must be repaid in the future.

Short-term external debt with a maturity of less than one year was $165.7 billion, up $6.3 billion from the previous quarter, and long-term external debt with a maturity exceeding one year was $400.2 billion, an increase of $14.6 billion. The short-term external debt ratio, which is the proportion of short-term external debt in total external debt, slightly rose to 29.3% from 29.2% in the previous quarter, and the short-term external debt ratio relative to reserve assets (foreign exchange reserves) increased by 1.2 percentage points to 37.1%.

Regarding this, the Ministry of Economy and Finance explained, "Although the short-term external debt ratio and total external debt ratio slightly increased, they are at levels similar to past averages and are relatively favorable compared to other emerging countries." According to the Ministry, the average quarterly short-term external debt ratio over the past 10 years (2010?2019) was 30.8%, and the short-term external debt ratio was about 36.4%. The emerging countries used for comparison by the government include Turkey (148% as of the end of last year), Argentina (100%), Malaysia (84%), South Africa (51%), and Indonesia (34%).

Furthermore, "The recent increase in external debt is mainly due to abundant global liquidity and positive overseas views on our fundamentals," adding, "It is also positively evaluated that the growth trend has slowed, especially in short-term external debt." The Ministry elaborated, "As South Korea has shown a faster economic recovery from the COVID-19 crisis than other countries and maintained high investment attractiveness, non-resident investment in government bonds and Monetary Stabilization Bonds accounted for more than half of the external debt increase during this quarter (out of the total external debt increase of $21 billion, the increase in non-resident holdings of government and Monetary Stabilization Bonds was $11.1 billion)."

Additionally, "With the recent maintenance of the highest-ever national credit rating and the credit default swap (CDS) premium hitting the lowest level since the global financial crisis, the borrowing conditions for domestic financial institutions and companies overseas are also very favorable," stating, "As of the 6th, South Korea's CDS premium was 19 basis points, marking the lowest since the 2008 global financial crisis, and it further declined by 18 basis points on the 21st, continuing the improvement trend."

External claims, meaning money to be received from overseas, amounted to $1.0307 trillion on the same basis, an increase of $2.9 billion from the previous quarter. This was mainly due to increased overseas bond investments by the government, central bank, and private banks. Net external claims, calculated by subtracting external debt from external claims, stood at $464.8 billion at the end of the first quarter, down $18 billion from the end of the previous quarter.

Regarding this, it was emphasized, "Considering the record-high foreign exchange reserves ($452.3 billion), external claims ($1.0307 trillion), and net external claims ($464.8 billion), the overall external soundness is also assessed to be at a stable level."

However, the government also expressed its intention to make efforts to manage external soundness in consideration of future external uncertainties. A Ministry of Economy and Finance official said, "As uncertainties such as recent global inflation concerns and increased financial market volatility continue, the government plans to closely monitor capital inflows and outflows and trends in external debt while continuing efforts to manage external soundness."

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