South Korea's Q3 External Debt Hits Record $610.8 Billion...Soundness Indicators Improve

2021 Q3 Trends in External Claims and Liabilities

[Sejong=Asia Economy Reporter Son Seon-hee] As of the third quarter, South Korea's external debt reached $610.8 billion, setting a new record high. Although short-term external debt decreased due to the strong dollar, long-term external debt increased due to factors such as the International Monetary Fund (IMF) Special Drawing Rights (SDR) allocation.

However, the government explained that the increase in external debt was the lowest in the past two years, indicating an improvement in external soundness indicators.

According to the "2021 Q3 External Claims and Liabilities Trends" announced by the Ministry of Economy and Finance on the 18th, external claims at the end of the third quarter totaled $1.0754 trillion, up $14.3 billion from the previous quarter's $1.0611 trillion. This was mainly attributed to increases in the central bank's foreign exchange reserves, government overseas bond investments, and non-bank overseas deposits.

At the same time, external liabilities stood at $610.8 billion at the end of the third quarter, an increase of $6.6 billion from the previous quarter's $604.2 billion. Short-term external debt (maturity within one year) decreased by $13.4 billion to $164.6 billion, while long-term external debt (maturity over one year) increased by $20 billion to $446.2 billion.

Net external claims (external claims minus external liabilities) rose again in the third quarter to $464.6 billion, an increase of $7.7 billion compared to the previous quarter.

The government assessed that the increase in external debt slowed and external soundness indicators improved. The Ministry of Economy and Finance explained, "The main reason for the increase in external debt this quarter was the increase in South Korea's holdings due to the IMF's general allocation of SDRs. Excluding this, external debt actually decreased."

It added, "Short-term external debt also decreased by the largest margin in 10 years since Q3 2011 (-$15.8 billion). Short-term borrowing, which had increased mainly in the banking sector, significantly declined due to reduced incentives for arbitrage, and foreign investment in domestic short-term bonds also decreased."

External debt soundness indicators also improved overall. The ratio of short-term external debt to total external debt fell by 2.5 percentage points to 26.9%, the lowest since Q2 2016. The ratio of short-term external debt to foreign exchange reserves also decreased by 3.7 percentage points to 35.5%. Although long-term external debt continues to rise due to foreign investment in domestic bonds, the government analyzed that its impact on external soundness is limited considering that it is denominated in Korean won.

The Ministry of Economy and Finance stated, "Given the ongoing uncertainties in international financial markets due to the recent start of the US Federal Reserve's tapering and discussions on normalization of major countries' monetary policies, we will closely monitor capital inflows and outflows and external debt trends while continuing efforts to manage external soundness."

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