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Little worry over rising debt raises deeper concern

Published: 14 Apr. 2026, 00:02

Suh Kyoung-ho

The author is an editorial writer at the JoongAng Ilbo.

A wave of media reports last week highlighted Korea’s growing fiscal strain, pointing to national debt surpassing 1.3 quadrillion won ($877 billion) and a deficit exceeding 100 trillion won for the second consecutive year. In response, the Ministry of Planning and Budget issued a statement emphasizing that the increase was unavoidable under difficult economic conditions, including weakened domestic demand and shifting global trade dynamics.

Park Hong-Keun, Minister of Planning and Budget, attends an extraordinary Cabinet meeting at the Government Complex Seoul in Jongno District, Seoul, on April 11. [NEWS1]

The ministry argued that expanding fiscal spending was necessary to support the economy and that the on-year debt increase of more than 129 trillion won reflected this role. It also noted that the debt-to-GDP ratio had declined slightly from earlier projections due to economic growth. The government reiterated its position that national debt should be assessed relative to the size of the economy rather than by its absolute level, framing fiscal expansion as a means to stimulate growth and create a virtuous cycle.

This argument carries some validity. The debt-to-GDP ratio of 49 percent last year remained within the government’s target of 49.1 percent outlined in the five-year fiscal management plan for 2025 through 2029. According to that plan, submitted to the National Assembly in September of last year, national debt is projected to increase by an average of 121 trillion won annually through 2029, while the debt ratio is expected to rise from 51.6 percent this year to 58 percent in 2029.

By this logic, even if debt continues to grow by more than 100 trillion won annually starting next year and approaches 60 percent of GDP by the end of the decade, it would still fall within government targets. What stands out is the government’s apparent composure toward the rapid expansion of debt.

More concerning than the level of debt or its ratio to GDP is the pace at which it is increasing. Korea’s national debt, which stood at 490 trillion won in 2013, is projected to reach 1.41 quadrillion won by the end of this year, nearly tripling in just over a decade. Among the 11 advanced global economies that do not issue reserve currencies, Korea’s debt growth rate ranks as the fastest.

This trend raises questions about fiscal preparedness in the face of demographic challenges. With a rapidly aging population and declining birthrates, welfare spending is expected to rise significantly. In the past, authorities emphasized the need to preserve fiscal capacity to address such pressures. Recently, however, that principle has become less prominent under the Lee Jae Myung administration, which has shifted its focus from “sound finance” to what it calls “sustainable finance.”

Rising national debt is often an unavoidable consequence of responding to crises. Deficit spending can help stabilize the economy during downturns. Historically, however, governments have made efforts to restore fiscal discipline once conditions improve, as seen after the Asian financial crisis in 1997 and the global financial crisis in 2008.

Countries with stable fiscal management typically rely on medium-term fiscal plans and binding rules to maintain discipline. Korea submits a five-year fiscal management plan alongside its annual budget, but unlike the budget, this plan is not subject to parliamentary approval or binding review. Nor does Korea enforce fiscal rules that legally cap deficits or debt levels, as the government has been reluctant to adopt measures it views as constraining policy flexibility.

In contrast, countries such as Sweden, Switzerland and Germany maintain fiscal frameworks that allow temporary deficits during downturns but require balanced budgets or surpluses over the medium term. These rules help ensure long-term fiscal sustainability.

In the absence of such mechanisms, market discipline may ultimately take their place. Inefficient fiscal spending can fail to support growth while fueling inflation. Over time, this could drive up long-term government bond yields and weaken the currency, imposing significant costs on the economy. There is also the risk that international credit rating agencies could downgrade Korea’s sovereign rating, which currently stands above that of Japan.

Warnings about excessive debt are not new. Ray Dalio, the hedge fund investor known for anticipating the 2008 global financial crisis, cautioned last year that mounting debt in the United States could lead to what he described as an “economic heart attack.” In his book “The Big Cycle (2021),” he wrote that when debt accumulates unchecked, the consequences can be severe.

Dalio offered a paradoxical observation: “If you are not worried, you should be, and if you are worried, you need not be.” The current administration appears unconcerned about rising debt levels. That, in itself, may be the most troubling signal.

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.