Home > Business > Economy

Treasury bonds, national debt pile up as interest payments approach $22 billion

Published: 17 Aug. 2025, 18:48 Updated: 17 Aug. 2025, 19:45

A Hana Bank official holds up 50,000 won ($36) bills at the bank's office in Jung District, central Seoul, on Feb. 19. [NEWS1]

The interest that the Korean government is expected to pay this year may exceed 30 trillion won ($22 billion).

The government’s interest payments on Treasury bonds — based on settlement figures — amounted to 28.2206 trillion won at the end of last year, according to the National Assembly Budget Office and the Ministry of Economy and Finance on Sunday. This marked a 51.4 percent surge, or 9.578 trillion won, from the end of 2020.

The interest burden has grown by an average of approximately 13 percent annually. At this pace, the cost of interest payments will exceed 30 trillion won for the first time in 2025. The government and ruling party have already allocated roughly 30 trillion won in the budget for interest payments this year.

The surge in interest payments stems from the government increasing its issuance of Treasury bonds to cover budget shortfalls. Total government debt stood at 1,141.2 trillion won at the end of last year, a 39.3 percent jump from 819.2 trillion won four years prior. Treasury bonds accounted for 92 percent of the total debt. The remainder included housing bonds and foreign exchange stabilization bonds, as well as other forms of borrowing.

Interest payments are taking up a growing share of total government expenditures. From 2020 to 2022, interest accounted for about 3 percent of total spending. In 2023, the proportion reached 4 percent and rose to 4.4 percent last year.

The Bank of Korea's main branch in Jung District, central Seoul, is pictured on Aug. 12 [YONHAP]

The problem lies in the possibility of a vicious cycle in which the government borrows more just to service its existing debt. Compounding the issue is the looming maturity of a large volume of Treasury bonds issued during the Covid-19 pandemic. The government will have to redeem 94 trillion won worth of bonds this year and another 98 trillion won next year. Since repaying the principal in one go is difficult, the government typically issues new bonds to repay old ones. If refinancing volumes flood the market, bond prices may fall and interest rates may rise, further increasing the government’s interest burden.

The current administration’s aggressive fiscal expansion to stimulate the economy is also weighing on the bond market. The key funding mechanism — an extra budget — is typically financed through the issuance of deficit-financing bonds. The domestic bond market has already shown signs of strain. The spread between long- and short-term government bond yields — the difference between 10-year and three-year bond rates — widened from 0.242 percentage points at the start of the year to 0.343 percentage points on Aug. 14. While short-term bond yields have fallen amid expectations of a rate cut, long-term yields continue to climb due to concerns over increased bond issuance.

Many experts warn that the accelerating pace of government debt growth could constrain fiscal policy. As of the end of July, the government had borrowed a cumulative total of 113.9 trillion won from the Bank of Korea's overdraft facility — a system used to cover temporary funding gaps due to timing differences between revenue and expenditure during the fiscal year. This was an 8.4 percent increase from the same period last year.

“Even if the government injects money to boost the economy, it must be directed toward industries that enhance long-term growth potential,” said Lee Yoon-soo, an economics professor at Sogang University. “In a situation where the debt burden continues to rise, financial resources must not be wasted.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY YEOM JI-HYEON [[email protected]]