Korea faces tough time curbing surge in government debt

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By Yoon Ja-young

Major advanced economies succeeded in decreasing government debt ratios last year, but Korea is seeing the ratio surge despite a huge increase in tax revenues.

According to Organization for Economic Cooperation and Development (OECD) data, all of the G7 countries ― the U.S., the U.K., France, Germany, Japan, Canada and Italy ― saw a decline in the ratio of government debt to gross domestic product (GDP) last year.

Italy saw the general government debt-to-GDP ratio reach 175 percent last year, down 10.5 percentage points from 2020.

Canada's ratio contracted by 9.6 percentage points during the same period, and France by 7.9 percentage points. The U.S. also saw its ratio dip by 6.5 percentage points and the U.K. by 6 percentage points. Japan, which has been suffering from snowballing government debt, saw the debt edge down 0.4 percentage point.

The government debt-to-GDP ratio of Korea, meanwhile, stood at 47.9 percent last year, up 2.5 percentage points from 2020. While the ratio itself is still far lower than those of other developed economies, the data is worrisome since it shows that Korea failed to control fiscal spending. It is expected to continue rising to 49.9 percent this year and 51.1 percent next year.

Korea is also an exception among OECD member countries.

The average government debt ratio of 39 OECD member countries dropped by 5.5 percentage points to 125 percent last year, but only seven countries, including Korea, saw the ratio rise. As the economy started recovering from the pandemic, other developed economies curtailed emergency expenditures, but Korea failed to control snowballing government debt despite earning 61.4 trillion won more in tax revenue than previously estimated.

While Korea's government debt ratio is expected to surge by 5.7 percentage points by 2023 compared to 2020, other OECD member countries are expected to see a 6.4 percentage point fall on average during the same period.

Cho Gyeong-lyeob, a senior research fellow at the Korea Economic Research Institute, said the ratio of government debt is expected to rise to 158.7 percent of GDP in 2060.

He advised slashing ineffective fiscal spending such as short-term job creation, while increasing tax revenue by spurring economic growth.

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