Borrowing casts cloud over state, private firms

Korea’s public- and private-sector debt equaled 2.6 times its gross domestic product (GDP) as of the end of June, data showed yesterday, triggering alarm bells about the country’s indebtedness.

The government, state companies, private firms and households owed a combined 3,283 trillion won ($2.9 trillion) as of end-June, up 5.7 percent from the 3,106 trillion won a year earlier, according to the data by think tanks and securities firms.

The debt-to-GDP percentage is based on an estimate that the economy, Asia’s fourth-largest, will expand 8 percent on-year in 2011 on a nominal basis.

Debts of households and nonprofit organizations jumped 9.4 percent on-year to 1,050 trillion won, while government debt rose 5.9 percent to 419 trillion won, according to the data.

Private companies’ debt came to 1,461 trillion won, up 1 percent from the previous year, while public companies’ liabilities shot up 15.9 percent to 353 trillion won, it showed.

Economists and market watchers raised concerns over the size of the country’s debt and its growth pace. Though the volume of Korea’s debt is relatively lower than other developed nations such as the United States and Japan, it has been growing as rapidly.

“Overall, Korea’s debt level is reasonable compared with other advanced economies. But household debt is already high and this could be a ticking time bomb for the local economy,” Park Deog-bae, an economist at Hyundai Research Institute, said by phone.

“At times when the government has the capacity to handle the debt, it will not be a big problem. But amid global uncertainties, it is definitely a risk factor.”

Recently, global credit ratings agency Fitch upgraded Korea’s debt outlook from stable to positive, however, it pointed out the country’s mounting household debt.

In a recent report, Kiwoom Securities Co. also pointed out the problem facing most households today.

“Personal debt is at a level that is difficult to stand. Borrowers’ capacity to repay their debts is also worsening amid weak domestic demand,” the brokerage said.

“The spillover of the euro zone crisis into Italy will be the biggest threat to the Korean economy,” said Shin Min-young, an economist at LG Economic Research Institute. “It’s true that high debts can be a burden to the local economy, but the country is still in reasonably good shape.”

Yonhap