Korea Tops Global Increase in Incurring Debt, Concerns Rise Over High Interest Rates
Korean household debt has experienced a rapid surge, reaching the highest level of increase worldwide. Not limited to households, both corporate and government debt have also been accumulating, resulting in a concerning situation for the Korean economy.
As compared to other countries, Korea’s debt ratio has sharply risen, foreshadowing potentially greater damage in the future, particularly during periods of high interest rates.
Private Debt Soars, Korea Takes the Lead
According to the International Monetary Fund (IMF), Korea’s private debt-to-gross domestic product (GDP) ratio reached 281.7% in the previous year. This represents a significant increase of 42.8 percentage points over a five-year period, marking the highest surge among the 26 countries for which data is available.
The overall ranking of Korea’s private debt-to-GDP ratio has been on the rise since 2017, when it ranked 11th globally. As of last year, it climbed to the 2nd spot.
Of particular concern is the surge in household debt, which is primarily responsible for the increase in private debt. Comparing 2017 to the previous year, Korea witnessed a growth of 16.1 percentage points in the household debt-to-GDP ratio, soaring to 108.1%. This is the highest level among the 26 countries, with Korea being the only nation to experience a double-digit increase.
Following Korea are Slovakia (9.1%), Japan (7.7%), Jordan (6.0%), Luxembourg (3.9%), Chile (2.8%), Switzerland (2.5%), and Germany (2.3%). On the other hand, the United States, Canada, the Netherlands, the United Kingdom, Austria, Denmark, Norway, and Portugal have seen declines in household debt.
As a result, Korea’s position in the overall household debt ratio rose from 7th to 2nd.
Factors Fueling the Increase in Household Debt
Experts attribute the rise in household debt to the real estate market. Amid the COVID-19 pandemic, real estate prices surged, and many individuals resorted to excessive loans for home purchases, leading to a significant surge in household debt. Additionally, the economic downturn due to the pandemic compelled self-employed individuals and small business owners to seek livelihood loans, exacerbating the situation.
Corporate and Government Debt Also on the Rise
Korea’s corporate debt-to-GDP ratio increased by 26.6 percentage points, reaching 173.6% last year. Only Luxembourg exceeded this figure with 38%.
Similarly, government debt witnessed rapid growth during this period. In 2017, Korea’s government debt-to-GDP ratio stood at approximately 40.1%, but by last year, it had climbed by 14.2 percentage points to 54.3%.
The growth rate in the government budget’s total spending rose from 3.7% in 2017 to 7.1% in 2018 and 9.5% in 2019. The years 2020 to 2022, dominated by the effects of COVID-19, saw an annual growth rate of approximately 9%.
Notably, government deficit bonds nearly tripled within a year, increasing from 34.3 trillion won in 2019 to 102.8 trillion won in 2020. Estimates for 2021 and 2022 stand at 88.2 trillion won and 86.2 trillion won, respectively.
[시사저널e=박성수 기자] Korean household debt has grown rapidly, recording the highest level of increase in the world. The Korean economy was found to be in debt as not only household debt, but also corporate debt and government debt were snowballing.
As Korea’s debt ratio rises steeply compared to other countries, the damage is expected to increase in the future in a period of high interest rates.
According to the International Monetary Fund (IMF) on the 3rd, the ratio of private debt to gross domestic product (GDP) of Korea last year was 281.7%. Compared to the private debt ratio of 238.9% in 2017, it is an increase of 42.8% points in 5 years.
This is the biggest increase among the 26 countries in the world for which data is available.
In 2017, Korea’s private debt-to-GDP ratio was 11th overall, but the ranking has risen each year, rising to 2nd last year.
The increase in private debt was mainly due to household debt.
Last year, Korea’s household debt to GDP ratio was 108.1%, up 16.1 percentage points from 2017 (92%). This is the highest level among the 26 countries for which data is available, and Korea is the only country to record a double-digit increase.
Following Korea, Slovakia (9.1%p), Japan (7.7%p), Jordan (6.0%p), Luxembourg (3.9%p), Chile (2.8%p), Switzerland (2.5%p), and Germany (2.3% p) ) is in that order. The share of household debt fell in the United States, Canada, the Netherlands, the United Kingdom, Austria, Denmark, Norway, and Portugal.
The position of the household debt ratio also jumped from 7th to 2nd overall.
The industry cited real estate as the reason for the increase in the household debt ratio. During the period of COVID-19, real estate prices increased and the number of people buying houses with excessive loans increased, leading to a significant increase in household debt. In addition, it is believed that the fact that self-employed and small business owners, whose income fell due to the domestic recession during the corona period, increased their livelihood loans has also had an impact.
Korea’s corporate debt-to-GDP ratio also increased by 26.6 percentage points from 147% in 2017 to 173.6% last year. This is second only to Luxembourg (38%c).
Government debt also grew rapidly during this period.
In 2017, the ratio of Korean government debt to GDP was around 40.1%, but last year it increased by 14.2 percentage points to 54.3%.
The growth rate of total spending in our government budget rose from 3.7% in 2017 to 7.1% in 2018 and 9.5% in 2019. Between 2020 and 2022, when COVID-19 was prevalent, the growth rate of spending was around 9% each year.
The amount of government deficit bonds also nearly tripled in a year from 34.3 trillion won in 2019 to 102.8 trillion won in 2020, and recorded 88.2 trillion won and 86.2 trillion won in 2021 and 2022, respectively.
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