Q3 Short-term External Debt Ratio Lowest in About 30 Years... "Good External Soundness"

Lowest since statistical compilation at 21.8%
Short-term external debt ratio also at lowest level since before the pandemic

The proportion of short-term external debt to total external debt, an indicator of South Korea's external debt soundness, fell to 21.8%, marking the lowest level since the related statistics were first compiled in the fourth quarter of 1994.

According to the "2023 Q3 International Investment Position" released by the Bank of Korea on the 22nd, South Korea's net external financial assets stood at $785.4 billion at the end of the third quarter of this year, an increase of $21.4 billion compared to the previous quarter.

Both external financial assets and external financial liabilities decreased by $20.8 billion and $42.2 billion respectively, totaling $2.2043 trillion and $1.4189 trillion, mainly due to non-transaction factors such as domestic stock price declines and depreciation of major currencies and the Korean won against the US dollar.

Net external claims, calculated by subtracting external liabilities from external claims, amounted to $352.7 billion, down by $1.1 billion from the previous quarter. External claims ($1.02 trillion) decreased by $16.9 billion, while external liabilities ($649.3 billion) decreased by $15.7 billion.

External claims declined due to reductions in short-term central bank reserve assets (-$7.3 billion) and loans by deposit-taking institutions (-$4.7 billion), while external liabilities decreased significantly due to a large drop in short-term external debt (-$20.3 billion). The decrease in short-term external debt was attributed to reduced short-term debt securities investments by foreigners and decreased cash and deposits (liabilities) of deposit-taking institutions.

Yoo Bok-geun, head of the Foreign Investment Statistics Team at the Bank of Korea's Economic Statistics Bureau, stated, "Foreigners' short-term debt securities investments decreased in the third quarter due to continued low arbitrage incentives, leading to a reduction in short-term arbitrage-oriented investments. The cash and deposits of deposit-taking institutions decreased due to the recovery of frozen domestic funds in Iran."

As a result, the short-term external debt ratio dropped by 2.5 percentage points from the previous quarter to 21.8%, reaching the lowest level since the fourth quarter of 1994, about 30 years ago.

The "short-term external debt ratio," which is the ratio of short-term external debt to reserve assets indicating external payment capacity, fell by 4.2 percentage points from the previous quarter to 34.2%, marking the lowest level since the fourth quarter of 2019 (33.1%), just before the COVID-19 pandemic. Although reserve assets, the denominator, decreased by $7.3 billion, the numerator, short-term external debt, decreased more sharply by $20.3 billion.

Yoo said, "The maturity structure of South Korea's external debt has lengthened since the global financial crisis due to increased foreign investment in domestic long-term bonds. In the third quarter, foreigners' short-term debt investments decreased, and deposit-taking institutions' cash and deposits declined. We assess that external soundness is favorable as external payment capacity has improved and the maturity structure of external debt has lengthened." He added, "However, given the significant uncertainties in the global economy, such as the Israel-Hamas war and prolonged global tightening policies, it is necessary to closely monitor changes in domestic and external economic conditions and foreign exchange market situations."

[Image source=Yonhap News]

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