Korea’s rising household and public debts could pose downside risks for its sovereign credit rating, a global credit appraiser forecast on Monday.

Standard & Poor’s said the rate of Korea’s indebtedness to its disposable income has been rising, with the debt of non-banking public institutions growing rapidly since 2008.

“Household debts continue to grow and it could complicate monetary policy for the central bank ... (and place it) in a difficult position to have to allow inflationary pressure, which will weaken consumption,” Kim Eng Tan, an analytical manager at S&P Asia-Pacific, said at a seminar held in Seoul.

According to S&P, the combined debt compared with the country’s disposable income stands at 154 percent as of end-2011, with the corresponding figure for the household debt rate coming in at 87 percent. Both have jumped from 120 percent and 75 percent, respectively, in 2005.

“The likelihood of the government providing financial assistance (to public firms) has increased,” Tan said.

The credit rating agency is in South Korea for a three-day annual meeting this week to talk with the nation’s key economic and financial policymakers about impacts of the eurozone crisis in regards to its fiscal health and geopolitical risks related to North Korea.

Snowballing household debts have emerged as a bugbear for the economy, Asia’s fourth-largest, reaching 857.8 trillion won ($744 billion) as of end-March. Combined debts owed by 284 public firms jumped to 386.6 trillion won in 2010, compared with 226.8 trillion won in 2006. 

(Yonhap News)