Government Debt Hits Record High: $1,110 Trillion and Counting – A Staggering 45% of GDP

▶ BIS, $823.4 billion at the end of the first quarter

▶ Increased spending, including response to coronavirus
▶Lower than the developed country average of 101.5%

At the end of the first quarter of this year, the ratio of debt held by the Korean government to nominal gross domestic product (GDP) was found to be at the highest level ever.

According to the Bank for International Settlements (BIS), the macro leverage of Korea’s government sector was 45.4% as of the end of March. It is the highest since the end of the fourth quarter of 1990, when BIS provides related statistics. Macroleverage refers to the ratio of debt held by households, businesses, and government sectors that make up the macroeconomy to GDP. Since BIS’ government sector macro leverage only covers the accounting and funds of central and local governments, it is calculated to be slightly lower than the International Monetary Fund’s (IMF) general government debt ratio, which includes debt of non-profit public institutions.

The government debt-to-GDP ratio according to BIS standards has continued to rise slowly since the end of 2018. It surpassed 40% for the first time at 40.3% at the end of the first quarter of 2020, and after hovering in the 43-44% range last year, it broke the 45% mark this year. BIS estimated the size of Korea’s government debt at the end of the first quarter at KRW 1,109.2597 trillion in Korean won and $823.403 billion in U.S. dollars. All are record highs.

The ratio of household and corporate debt to GDP decreased compared to the end of last year. Based on BIS, household sector macro leverage fell from 93.6% at the end of the fourth quarter of last year to 92% at the end of the first quarter of this year, and corporate sector macro leverage also decreased from 113% to 112.2%. Accordingly, the ratio of private credit to GDP (household debt + corporate debt) also fell slightly from 206.5% to 204.2%. In the case of the household debt-to-GDP ratio, the international ranking was lowered one level to 5th as GDP was adjusted upward due to the change in the base year.

The macro leverage of Korea’s government sector is maintained at a low level compared to the average (101.5%) of developed countries, which are mostly reserve currency countries. However, after the consolidated fiscal balance (total income – total expenditure) turned into a deficit in 2019, the deficit continues as government spending increases to respond to the COVID-19 crisis.

Accordingly, the Bank of Korea also emphasized the need to manage financial soundness. In the financial stability report released in June, the Bank of Korea emphasized, “As statutory expenditures in the welfare sector and government bond interest are expected to increase in the future due to aging and low birth rates, the fiscal balance must be appropriately managed from a mid- to long-term perspective.”

Reporter Kang Yu-bin>