Korea Issues 'Overspeed Warning' on National Debt Increase

Two Years of the COVID-19 Crisis... South Korea's National Debt Growth Rate Ranks 3rd Among Top 10 Advanced Economies

[Asia Economy Sejong=Reporter Son Seonhee] During the past two years of the COVID-19 pandemic, South Korea's national debt growth rate was the third steepest among major advanced countries. As the Presidential Transition Committee is set to soon announce plans to draft a large-scale supplementary budget (supplementary budget) in the 30 trillion won range, major international credit rating agencies have expressed strong caution about further increasing national debt due to concerns over fiscal soundness.

According to the '2022 Economic and Fiscal Handbook' published by the National Assembly Budget Office on the 22nd, South Korea's average annual national debt growth rate from 2019 to 2021 (year-end basis) was 14.4%. Among the top 10 countries with the highest debt growth rates, Canada (17.5%) was the only country with an economy ranked in the world's top 10 by gross domestic product (GDP). South Korea ranked third among major advanced countries, following Canada and the United States (14.8%). Among all OECD member countries (37 countries excluding Costa Rica, which joined in May last year), South Korea ranked 17th. France (9.5%), Italy (6.8%), and Japan (3.9%) all had single-digit debt growth rates.

With national debt rapidly increasing due to such excessive 'expansionary fiscal policy,' major countries including the United States are shifting their fiscal policy direction starting this year. The International Monetary Fund (IMF) has also recommended normalization of monetary and fiscal policies for countries in response to the endemic phase of COVID-19 (periodic outbreaks of infectious diseases).

However, coinciding with the change of government, South Korea appears to be injecting large-scale fiscal spending again according to the previous presidential election pledges. International credit rating agencies, concerned about adverse effects on inflation and fiscal soundness, are closely monitoring the South Korean government's moves to draft a supplementary budget. Moody's stated in a press release yesterday that "South Korea's national debt will remain at a high level" and predicted that "the expansionary fiscal stance is likely to continue even after the end of pandemic emergency support measures."

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