Major institutions have cut Korea’s growth outlook, with the OECD lowering its forecast to 1.7 percent, while the Bank of Korea said growth will miss 2 percent.
South Korea's debt shows little sign of slowing, with recent government data indicating it is rising faster than expected and remains on course to push the debt-to-GDP ratio to 60 percent by 2030.
National debt stood at 1,304.5 trillion won ($878.2 billion) at the end of 2025, up 129.4 trillion won from a year earlier and marking the biggest annual increase since records began in 1997, according to the Finance Ministry's recent national settlement report.
The figure was marginally above the 1,301.9 trillion won projected in the ministry's 2025-2029 fiscal management plan submitted to parliament in September.
The debt-to-GDP ratio came in at 49 percent last year, just below the government's initial forecast of 49.1 percent. Even so, it was 3 percentage points higher than a year earlier, the steepest annual increase since the 5.7 percentage-point jump recorded in 2020.
The only larger increases came in 1998, when the ratio rose 3.6 percentage points, and in 2005, when it climbed 3.3 percentage points.
The latest figures are broadly in line with the government's projection that both debt accumulation and the debt burden relative to the economy will keep accelerating. Under the five-year fiscal plan, national debt is expected to rise by an average of 121 trillion won a year over the next four years, reaching 1,788.9 trillion won by the end of 2029.
The plan also showed the debt-to-GDP ratio is projected to rise to 51.6 percent this year, 53.8 percent in 2027, 56.2 percent in 2028 and 58 percent in 2029, putting it on course to surpass 60 percent in 2030.
The pace marks a clear shift from recent years. Aside from 2025, national debt increased by more than 100 trillion won only in 2020 and 2021, when the government ramped up spending during the pandemic. Annual growth in the debt-to-GDP ratio, meanwhile, had slowed steadily over the previous four years, from a rise of 2.7 percentage points in 2021 to a decline of 0.8 percentage point in 2024.
The government's latest spending push may not immediately worsen headline fiscal indicators, but it does little to change the broader trajectory of debt accumulation.
The National Assembly on Friday approved a 26.2 trillion won supplementary budget, the first of the year, as Seoul sought to cushion the economy from higher oil prices and the impacts of prolonged conflict in the Middle East.
The headline figures improved modestly under the revised plan, but the broader fiscal picture changed little. With the additional outlays, the managed fiscal deficit is now projected at 107.6 trillion won, or 3.8 percent of gross domestic product, down 200 billion won and 0.1 percentage point from the original budget plan.
Year-end national debt, including the supplementary budget, is estimated at 1,412.8 trillion won, 1 trillion won lower than previously budgeted, with the debt-to-GDP ratio put at 50.6 percent.
The weakening fiscal picture comes as Korea faces slowing productivity and softer growth. Major institutions have been lowering their outlooks for Asia's fourth-largest economy this year, with the OECD cutting its forecast by 0.4 percentage point from three months earlier to 1.7 percent in its March outlook. The Bank of Korea governor also said Friday that growth would fall short of the central bank's February forecast of 2 percent.
The International Monetary Fund painted an even darker picture in its October forecast, projecting Korea's debt-to-GDP ratio at 64.3 percent in 2030. That was more than 5 percentage points above its estimate six months earlier and over 10 percentage points higher than the 53.4 percent projected for 2025, the fastest increase among non-reserve currency economies.
jwc@heraldcorp.com
