Debt climbs to record level due to pensionsGovernment debt hovered at the 1,700 trillion won ($1.5 trillion) level for 2018, a record, as potential civil service and military pension payouts continue to grow.
According to the Ministry of Economy and Finance on Tuesday, the Moon Jae-in government’s first yearly balance sheet for 2018 fared relatively well.
Gross tax revenue amounted to 385 trillion won, up 7 percent or 25.4 trillion won thanks to the better-than-expected tax collections. Gross spending increased 6 percent or 21.6 trillion won to 364.5 trillion won. That brought the government’s surplus to 16.5 trillion won, up 1.8 percent.
When adding in a carryover from a year earlier, the net surplus amounted to 13.2 trillion won, a 17-percent improvement from the 11.3 trillion won posted in 2017.
The ministry cited the capital market and improvement in corporate performances for the larger tax collections.
Beyond the figures for 2018, Korea’s consolidated public finances saw a 30-percent or 7.1-trillion-won increase in its surplus to reach 31.2 trillion won.
This surplus is now equivalent to 1.7 percent of the nation’s gross domestic product (GDP), up from 1.4 percent in 2017.
In the last three years, Korea has been enjoying increases in its consolidated public finances surplus. Debt owed by both the central government and regional government increased, although at the slowest rate since 2009.
That debt amounted to a record level of 680.7 trillion won last year, up nearly 4 percent or 24 trillion won from 2017’s 651.8 trillion won.
The ministry said this debt is equivalent to 38.2 percent of GDP, which is the same as in the previous year.
Yet there are growing concerns about pension payments the government will have to make for civil servants and soldiers in the future.
Last year, the gross debt the country owes - which includes immediate debts, debt owed by public companies and liabilities of the four pension systems - increased 8 percent compared to the previous year to reach 1,682 trillion won. That’s 126.9 trillion won more than the previous year. The government’s total assets during the same period increased 3 percent or 61.2 trillion won to reach 2,124 trillion won, bringing net sovereign assets to 441 trillion won - 13 percent lower than the previous year’s 506.7 trillion won.
Much of this increase in gross debt was due to pensions for government employees and soldiers.
The gross national debt increase was largely contributed by the total pension liabilities amounting to 94.1 trillion won, as well as the 21.7 trillion won in treasury bonds issued by the government.
In the last three years, pension liabilities have been increasing at nearly 100 trillion won a year.
Total pension liabilities for civil servants alone are now 753 trillion won, which is 78.6 trillion won or 11.6 percent more than the previous year. Soldiers’ pensions amounted to 186 trillion won, up 15.5 trillion won or 9.1 percent year on year.
The ministry said pension liabilities went up because of lower interest rates.
“When the treasuries’ interest rate drops 0.1 percentage points, the pension liabilities increase by 20 trillion won,” said a ministry official. “Recently, the interest rates have fallen to the 1-percent range.”
Although pension liabilities do not have to be covered immediately, the increase may indicate that tax revenues will have to be used in the future to cover them.
This burden is expected to grow with the Moon government planning to increase the number of civil servants by the end of its term. After taking office in May 2017, Moon promised to hire 174,000 civil servants by 2022.
The ministry, however, said that while total pension liabilities last year grew, the growth rate has slowed.
The accrued pension liability for civil servants increased 11.6 percent compared to the previous year, which is lower than the 12.5-percent increase in 2017. Additionally, the pension liability for soldiers increased 9.1 percent, less than the 12.1 percent in 2017.
BY LEE HO-JEONG [email@example.com]