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| gettyimagesbank |
By Anna J. Park
While Korea's debt-to-GDP ratio is worsening at an alarming rate, its fiscal soundness is expected to continue deteriorating, according to the latest report from the International Monetary Fund (IMF).
The IMF said in its Fiscal Monitor report published earlier this month that Korea's debt-to-GDP ratio was estimated at 54.3 percent as of the end of last year, up 0.2 percentage points from 54.1 percent, the estimate made in the IMF's previous report last October. Such a rise in just six months is considered fast, given the economic size of Korea.
It's also the first time Korea's debt-to-GDP ratio estimate has exceeded that of the average of 10 non-key-currency countries. The 10 advanced countries' average debt-to-GDP ratio, as of the end of last year, stood at 52 percent, which is below Korea's 54.3 percent. The projections included in the Fiscal Monitor were drawn from the same database used for the April 2023 World Economic Outlook and Global Financial Stability Report.
The global international institution's biannual report forecasts that Korea's debt-to-GDP ratio is expected to continue rising, as it states that the country's debt-to-GDP ratio is projected to stand at 55.3 percent by the end of this year. The figure is 0.9 percentage points higher than its previous report's projection for 2023.
The report also projects that Korea's debt-to-GDP ratio will continue to exacerbate for the following years, as it forecasts the figure for 2024 will be 55.9 percent, rising to 56.6 percent for 2025, then to 57.2 percent in 2027.
Market watchers view that the soaring debt-to-GDP ratio projections are attributed mainly to the IMF's slowed growth forecasts for Korea. Yet, they express concerns about Korea's debt ratio exceeding the average of major non-key-currency countries. As the demand for key currency countries' government bonds far exceeds that for non-key-currency countries, the Korean government is urged to pay extra caution in managing its debt ratio at a safer level.
"The fact that Korea's debt-to-GDP ratio is higher than the average of advanced non-key-currency countries shows the country can no longer boast financial soundness. As Korea faces the challenges of a low birthrate and aging population, the government should manage its financial status in a medium- and long-term perspective," a market insider said.
