State-backed bonds outstanding hit 1,100 trillion won

Total bonds outstanding backed by the government reached an all-time high of 1,100 trillion won ($900 billion) as of May 5, suggesting a growing burden as the country scrambles to contain the economic fallout of the coronavirus pandemic.

According to Korea Financial Investment Association's data Monday, state bonds and special bonds issued by public financial institutions outstanding amounted to 1,098.4 trillion won as of the first week of May, expanding by 78 trillion won in the first four months of this year alone. This figure exceeds the 51 trillion won of newly issued debt for full-year 2019.

Debt offerings by the government stood at 753.5 trillion won, while those by the state institutions stood at 344.9 trillion won as of May 8, increasing by 65.7 trillion and 12.6 trillion won compared to the end of last year respectively.

In April, a total of 24.7 trillion won worth of state bonds were issued, 2 trillion won less than in March when coronavirus infections peaked in Korea.

Of all types of bonds issued, the state bonds were 35.4 percent of the total, financial bonds 23.2 percent and special bonds 16.2 percent.

Issuance of state bonds accelerated with the coronavirus pandemic. The Korean government in March released an 11.7 trillion won worth of fiscal stimulus, 10.3 trillion won of which was raised through debt financing. Last month, the National Assembly approved a second round of fiscal stimulus totaling 14.3 trillion won to distribute as emergency disaster funding. Of the package, 3.4 trillion won was financed through the issuing of state bonds.

Debt financing by the government is likely to continue for the time being as a third round of fiscal stimulus is scheduled to pass the National Assembly next month. A newly found cluster of infection in Seoul is also raising concern that the nationwide social distancing policy could be resumed.

“A second and third round of stimulus could be a heavy burden to the market,” said Gong Dong-rak, analyst at Daishin Securities.

“Either by controlling the state expenditure or through a purchase plan by the central bank, the outstanding bonds backed by the government should stay under control.”

The third round, an estimated 30 trillion won fiscal package, will be directed toward the employment market under the “New Deal” program starting next month. An additional issuance of state bonds is inevitable, as the outbreak has resulted in a fall of tax revenue.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]