IMF Issues Direct Warning on Korea's Debt: "Global Debt to Reach World War II Levels in Three Years"

Korea's Debt-to-GDP Ratio Projected to Exceed 60% by 2029

Reuters Yonhap News

The International Monetary Fund (IMF) has forecasted that, as a result of the direct and indirect impacts of the Middle East war, countries around the world are increasing fiscal spending, and the global debt-to-GDP ratio will exceed 100% by 2029. This serves as a warning that, in three years, the world could be saddled with as much debt as during World War II. In Korea’s case, the IMF projected that the national debt ratio will continue to rise and surpass 60% in three years.

According to the Ministry of Economy and Finance and other sources on April 16, the IMF, in its ‘Fiscal Monitor’ report released on the same day, estimated Korea’s general government debt-to-GDP ratio (D2) for this year at 54.4%. This is an improvement of 2.3 percentage points from the IMF’s projection made in October last year (56.7%). The upward revision is attributed to the nominal growth rate of the Korean economy being raised from the previous estimate of 2.1% to 4.7%, thanks to the semiconductor industry boom. D2 refers to the sum of central and local government debt—often called national debt (D1)—plus the liabilities of non-profit public institutions.

The IMF specifically pointed out that a significant increase in government debt is expected for Korea. The IMF stated, “While Spain and Japan are projected to see a decline in their debt-to-GDP ratios by 10 to 14 percentage points by 2031, Korea and Belgium are expected to see significant increases, reaching 63% and 122% respectively by 2031.”

However, this report also reflected some improvements in the debt ratio outlook. The IMF projected Korea’s D2-to-GDP ratio to be 54.4% in 2026, 56.6% in 2027, 58.5% in 2028, 60.1% in 2029, 61.7% in 2030, and 63.1% in 2031. These figures are 2.3 to 2.6 percentage points lower than the projections made in October last year for the period from 2026 to 2030. The Ministry of Economy and Finance assessed, “This partially reflects the positive evaluation of performance-based and strategic fiscal management.”

In the same report, the IMF also issued a warning about the rapidly rising global debt. Due to the aftermath of the Middle East crisis, the IMF expects the global D2-to-GDP ratio to increase from 95.3% in 2026 to 97.3% in 2027, 98.8% in 2028, and to surpass 100.1% in 2029—reaching World War II levels of sovereign debt in just three years.

This 100.1% figure is higher than last April’s forecast for 2029 (98.9%). The IMF identified several key risks that could worsen fiscal conditions in the future: spending pressures stemming from the Middle East war, the spread of protectionism, structural changes in the government bond market, financial market risks related to artificial intelligence (AI), and demographic changes.

The IMF noted, “Energy-importing countries, especially developing economies, are facing the greatest financial burdens, while major Gulf region exporters—who are directly affected by the conflict—will see fewer potential beneficiaries compared to past energy shocks.”

The IMF therefore recommended that Korea and other countries pursue more sophisticated fiscal management. “In response to rising energy prices, it is desirable to limit and temporarily target support to vulnerable groups,” the IMF emphasized, adding, “To ensure fiscal sustainability, countries should clearly establish medium-term fiscal frameworks and reduce expenditures with unclear effectiveness, while securing capacity for public investment that enhances growth potential.”

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