The nation’s public debt woesThe pace of the rise in national debt is alarming. According to the government’s finalized budget proposal for 2016, national liabilities are expected to reach 654.2 trillion won ($546.3 billion), up 40.1 trillion won from 2015. Debt would for the first time in history take up 40 percent of the country’s gross domestic product (GDP). Interest payments on government bonds would increase 1.5 trillion won to reach 18 trillion won. Public debt that stood at 111 trillion won in 2000 jumped to 595.1 trillion won last year. The increase in debt has accelerated since the 2008 global financial crisis, and it only took seven years for public debt share against the GDP to reach over 40 percent, up from 30 percent.
Taking into account ballooning public debt, the government pledged to be “conservative” in drawing up next year’s budget. Choi Kyung-hwan, the deputy prime minister for the economy, said the government lowered the target for revenue and expenditures, expecting tax revenue to decline next year amid a slow economy. He also promised to improve integrity in public finance through reforms in fiscal spending and restructuring in the long run.
But whether those promises can be kept is questionable. The government last year vowed to lower national finances to the mid-30 percent level of the GDP by 2018. It now expects to keep the share around 40 percent by 2019. The government has neither made the right estimate nor does it appear to be determined to fix this. Furthermore, Korea is the world’s seventh-largest trader, but its currency is frequently swayed by external factors.
Public debt is bound to increase amid rising demand to finance social welfare and an aging population. Health care, welfare and the employment budget will for the first time take up more than 30 percent of the government budget next year. Under the current rate, expenditures could reach 140.3 trillion won by 2019, from 122.9 trillion won in 2016. Public finance will only worsen as these expenses must be handled even with debt.
Our integrity in public finance has been our strongest asset against external turbulence. Korea’s sovereign ratings rose after the financial crisis, while the United States and Japan were downgraded due to their strong integrity in public finance. If public debt levels rise on top of already-massive household debt, the Korean economy could be in danger. National debt is a huge burden for the future generation. The government must accelerate reforms in fiscal spending and rationalize welfare costs, examining the budget proposal more thoroughly so that there are no leaks.
JoongAng Ilbo, Sept. 9, Page 34