Q2 External Debt Increases by $7.9 Billion... Ministry of Economy and Finance Says "External Debt Soundness Still Good"

(Data from the Ministry of Economy and Finance)

In the second quarter of this year, South Korea's external claims decreased by $31.7 billion, while external debt increased by $7.9 billion. Although short-term external debt with maturities under one year also rose significantly, the government assessed that the soundness of external debt remains at a favorable level.

According to the "2022 Q2 External Claims and Debt Trends" released by the Ministry of Economy and Finance on the 25th, South Korea's external claims in the second quarter stood at $1,048.2 billion, down $31.7 billion from the end of the previous quarter ($1,079.8 billion).

This decline was influenced by decreases in foreign exchange reserves (-$19.5 billion) and long-term foreign currency securities investments in other sectors (non-bank, public, and private enterprises) (-$12.8 billion).

On the other hand, during the same period, external debt rose to $662 billion, an increase of $7.9 billion. The growth rate slowed compared to the previous quarter ($21.7 billion).

Short-term external debt reached $183.8 billion, increasing by $8.9 billion. Consequently, the proportion of short-term external debt within total external debt expanded from 26.7% in Q1 to 27.8% in Q2. Based on holdings, the short-term external debt ratio grew from 38.2% in Q1 to 41.9% in Q2.

By sector, external debt decreased for the government (-$5.4 billion), the central bank (-$4.2 billion), and other sectors (-$0.2 billion), while bank external debt increased significantly by $17.7 billion.

The Ministry of Economy and Finance explained, "The government and central bank saw declines mainly in foreign-held long-term government bonds and Monetary Stabilization Bonds due to exchange rate appreciation reducing their dollar-converted amounts, while banks increased short-term foreign currency borrowings driven by expanded foreign currency loans and higher incentives for arbitrage."

Net external claims, calculated as external claims minus external debt, stood at $386.1 billion at the end of Q2, down $39.6 billion from the previous quarter.

The Ministry stated that considering past trends, repayment capacity, and detailed causes, the soundness of external debt remains at a favorable level.

Although the proportion of short-term external debt, which had sharply declined at the end of last year, has been rising this year, it is still not unfavorable compared to historical averages or the financial crisis period. Moreover, banks, which saw a significant increase in short-term external debt in Q2, have sufficiently high external debt repayment capacity.

However, the Ministry emphasized that it will closely examine the causes of external debt increases and maturity structure trends to strengthen efforts in managing external soundness.

With the ongoing tightening stance of the U.S. Federal Reserve (Fed) and prolonged won-dollar exchange rate increases, there is a possibility that the trend toward shortening external debt maturities will continue due to decreases in foreign exchange reserves and the dollar-converted amounts of foreign-held long-term won bonds.

The Ministry of Economy and Finance stated, "We will closely monitor external debt trends and capital inflow and outflow flows to strengthen efforts in managing external soundness," adding, "We also plan to continue efforts to lengthen the maturity structure of external debt by encouraging long-term foreign currency bond issuance, primarily by public institutions."

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