"Children Born This Year Will Face Over 100 Million Won National Debt Burden by Age 18"

National Debt Increased by an Average of 6.3% Annually Over the Past 5 Years (2014-2019) Due to Rising Fiscal Expenditure
Hankyung Research Estimates Debt Burden Per Working-Age Population
Urgent Need to Enact Fiscal Rules and Restructure Fiscal Expenditure

[Asia Economy Reporter Kim Hyewon] A warning has been issued that newborns this year will bear a national debt exceeding 100 million won by the time they graduate from high school.

The Korea Economic Research Institute (KERI) announced on the 30th that if the recent national debt growth rate over the past five years (2014?2019, an average annual increase of 6.3%) continues, the national debt burden per capita will surpass 100 million won (100.52 million won) in 2038, 200 million won (210.46 million won) in 2047, and 300 million won (307.05 million won) in 2052. To exclude the abnormal fiscal surge effects caused by COVID-19 on the debt burden growth rate, last year and this year were excluded from the analysis.

As of the end of last year, South Korea's national debt stood at 847 trillion won, accounting for 44.0% of that year's nominal Gross Domestic Product (GDP). The national debt ratio had maintained around 35.9% of GDP until 2018 but rose to 37.7% in 2019. Last year, due to expanded fiscal spending to respond to COVID-19, the national debt increased by 124 trillion won within the year, pushing the national debt ratio well beyond the 40% threshold, which had been considered the fiscal soundness margin by previous governments. According to the Ministry of Economy and Finance, the national debt ratio is expected to rise further to 47.2% this year due to continued rapid increases from disaster relief payments and other expenditures.

KERI evaluated that even considering the special circumstances of COVID-19, the recent pace of national debt increase in South Korea is at a concerning level. Fitch, one of the three major global credit rating agencies, also pointed out South Korea's rising national debt as a potential risk factor for the economy in July.

National Debt per Working-Age Population Surpasses 100 Million Won in 17 Years

KERI estimated that even if the national debt growth rate slows to pre-COVID-19 levels, the national debt will sharply increase from 847 trillion won at the end of last year to 1,913 trillion won in 2030, 3,519 trillion won in 2040, and 6,474 trillion won in 2050.

Adding to this, the decline in the working-age population due to low birth rates and aging will inevitably increase the national debt burden that future citizens must bear. According to the 2019 special future population projections by Statistics Korea, the working-age population is expected to steadily decrease from 37.36 million at the end of last year to 33.95 million in 2030, 28.65 million in 2040, and 24.49 million in 2050.

Based on recent national debt growth rates and working-age population projections, KERI estimated that the national debt per working-age person was 22.67 million won at the end of last year, rising to 100.52 million won in 2038, 210.46 million won in 2047, and 307.05 million won in 2052.

KERI expressed concern that the national debt per capita burden that newborns this year will face when they turn 18 and graduate from high school has already surpassed 100 million won, warning that if this trend continues, future generations will inevitably bear a massive debt burden.

Korean-Style Fiscal Rules Stalled for Over 10 Months... Urgent Need for Legislation

The government announced last October that it would introduce "Korean-style fiscal rules" to secure medium- to long-term fiscal soundness. The rules aim to keep the national debt ratio below 60% and the consolidated fiscal deficit below -3%. However, about 10 months later, the government-proposed bill remains pending in the National Assembly.

Even as the legislation for fiscal rules has been delayed, fiscal spending has continued to increase. By the end of this year, the national debt ratio is expected to reach 47.2% of GDP, and the consolidated fiscal deficit is projected at -4.4% of GDP. Applying these figures to the "Korean-style fiscal rules" formula results in a value of 1.15, exceeding the standard threshold (1.0 or below), indicating a deterioration in fiscal soundness.

Choo Kwang-ho, Director of Economic Policy at KERI, stated, "Even considering the special circumstances of COVID-19, the recent pace of national debt increase in South Korea is at a concerning level," emphasizing, "To avoid passing excessive debt burdens to future generations, urgent and strict fiscal soundness management, including the legislation of fiscal rules, is necessary."

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