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The growing weight of expansionary finances

Published: 18 Aug. 2025, 00:02

President Lee Jae Myung speaks during the third Emergency Economic Task Force meeting held at the presidential office in Yongsan, central Seoul, on July 30. [JOINT PRESS CORPS]

The government’s expansionary fiscal line is becoming unmistakable — and so are the warnings about fiscal soundness. President Lee Jae Myung has insisted that “we must sow seeds, even if we have to borrow them.” Issuing bonds to inject money into the economy may offer a short-term fix. But the hard truth is that Korea’s fiscal health is fraying at an alarming pace.

Interest payments alone tell the story. They ballooned from 18.6 trillion won ($13.3 billion) in 2020 to 28.2 trillion won last year, climbing at a 13 percentage point average rate each year. This year, the bill is set to top 30 trillion won. The share of interest costs in total spending has jumped from the low 3 percent range to around the 4 percent range, squeezing fiscal room for everything else.

The reckoning is only beginning. Bonds issued in vast amounts during the Covid-19 pandemic are now coming due: 94 trillion won this year and 98 trillion won next year. For years to come, some 100 trillion won in refinancing bonds will hit the market annually, fueling rate pressure and pushing debt-servicing costs higher still. At the same time, the government has turned to short-term borrowing from the Bank of Korea to cover gaps — 114 trillion won in just the first seven months of this year, a record sum. No wonder the managed fiscal deficit has blown past 4 percent of GDP, far above the 3 percent ceiling enshrined in the fiscal rule.

The trajectory of national debt is even more troubling. The Moon Jae-in administration derided the 40 percent debt-to-GDP line as an “artificial shackle” and tore it away. The result was a debt surge of more than 400 trillion won in five years. Today, the government is rolling out a 13 trillion won nationwide coupon program to spur consumption. Voices from the ruling party already hint at more issuances. This is not fiscal prudence — it is fiscal drift.

Adding to the unease, the government has chosen to weaken standards for feasibility reviews, effectively lowering the bar for large-scale infrastructure projects. Balancing regional growth and reflecting inflation are understandable goals. But history is littered with the carcasses of white elephants — “roads without cars” and “airports without airplanes but for drying red peppers” — projects that devoured public money but delivered little. Without strict discipline, we risk repeating the same follies.

The greater danger lies ahead. The government claims it will cover more than half of the 210 trillion won needed for its policy agenda through restructuring expenditures. That pledge rings hollow when tax revenues have lagged for three consecutive years and short-term borrowing is at record highs. Once fiscal soundness is lost, it is painfully difficult to restore. Expansionary spending can prime growth only if it is selective and disciplined, anchored in a virtuous fiscal cycle. Cutting wasteful outlays and channeling resources into investments that raise growth potential are imperative. So is cultivating new growth industries to widen the revenue base.

Borrowed seeds can either nourish future harvests or drain the soil barren. Whether this government chooses the former or resigns the nation to the latter will define its fiscal legacy.

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.