Budgeting for the futureSouth Korea’s national debt reached 774 trillion won ($653.6 billion) last year, the government said, in what amounts to a significant revision of its previous estimate of 420 trillion won. The new figure was compiled according to the accrual method of calculating private companies’ financial statements, which sees revenues and expenses reported when they are incurred rather than paid, and is considered more transparent than cash accounting.
The national debt surged because the government included reserves of 342 trillion won that have been set aside for pensions for public servants and military servicemen, which the state was obliged to consider current debt.
The Strategy and Finance Ministry explained that, even though the total figure for borrowing jumped, it does not indicate that new lending rose significantly. It added that there was no change to either the principal or interest that the government owes and must refinance from its tax reserves.
However, the new figure does draw attention to the nation’s future liabilities, and sets alarm bells ringing given the burgeoning onus of welfare and social programs threatens to deepen debt levels. New spending aimed at expanding welfare benefits without any regard for whether the budget can support it could one day prove calamitous.
Moreover, the revised figure does not include the 463 trillion won of debt owed by state-invested and public organizations. Reserves for the National Pension and Teachers’ Pension were also excluded on the pretext that the state does not have a direct obligation to finance these. If they are all taken into account, though, the country’s actual debt would top 1,000 trillion won.
Fortunately, most of this looks as though it will safely be repaid. But reckless financial management could trigger a disaster on a similar level to what has been happening to debt-saddled states like Greece, Portugal or Spain. The government should exercise discretion in new social and welfare spending to better manage its finances, and the National Assembly and aspiring presidential candidates should take note.