As debt spirals to $2.75T, risk to economic vitality grows

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As debt spirals to $2.75T, risk to economic vitality grows

Korea’s total debt in the private and public sectors neared the 3,000 trillion won ($2.75 trillion) mark in the second quarter of this year, spawning concerns that high indebtedness will undercut economic growth, data showed yesterday.

Combined debt held by the government, companies and households amounted to 296.2 trillion won as of end-June, accounting for 233.8 percent of nominal GDP, according to data.

Debt-to-GDP ratio stood at 231.1 percent as of the end of last year, it showed.

The ratio has mostly grown in the wake of the 2008 financial crisis as the government expanded fiscal spending to spur growth, while low borrowing costs prompted more households to rely on bank lending.

Korea’s household debt has been cited as the main bugbear for policy makers because of fears that households’ high indebtedness will curb domestic demand and thus crimp economic growth.

Households’ debt-to-GDP ratio stood at 88.5 percent as of the end of June, down from 89.2 percent at the end of last year. It is still hovering above 85 percent, experts say.

Unlike the euro zone, which is mired in a debt crisis, Korea maintained relatively strong fiscal health, which helped the country secure credit rating upgrades by three global credit appraisers.

However, analysts are sounding alarms over the government’s growing debt, saying the stimulus measures and a set of welfare pledges by politicians may hurt its fiscal soundness.

The ratio of state debts against the GDP reached 37.2 percent as of the end of the second quarter, up from 35.1 percent tallied at the end of 2011, data showed. Yonhap

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