South Korea's government debt-to-GDP ratio is projected to rise faster than any other non-reserve currency nation over the next five years, according to an analysis by the International Monetary Fund (IMF). The acceleration stems from rising mandatory spending due to population aging, compounded by the government's shift toward expansionary fiscal policy. Economists warn that excessively rapid debt growth could lower the nation's credit standing, push up government bond yields and market interest rates, and ultimately dampen private investment and consumption.
According to IMF data released Wednesday, Korea's government debt-to-GDP ratio (D2 basis) is forecast to climb from 53.4 percent this year to 64.3 percent by 2030—a 10.9 percentage point increase. This growth rate ranks first among non-reserve currency countries, trailing only the United States (+18.4 percentage points), France (+12.9 percentage points), Belgium, Slovakia, Estonia, and Lithuania—all nations that use the dollar or euro as reserve currencies. These countries have a relative safety net, as their reserve currency status makes it easier to raise funds in international financial markets even when fiscal health deteriorates.
"Fiscal soundness must be evaluated according to each country's individual circumstances," a foreign exchange market expert said. "Comparing Korea's safe debt level to dollar or eurozone countries would be a serious mistake."
Korea's debt trajectory is particularly concerning when viewed from a longer time horizon. According to the IMF, the debt-to-GDP ratio will surge 18.4 percentage points from 45.9 percent in 2020 to 64.3 percent in 2030—the third-highest increase among 37 countries surveyed. The two countries ranked higher, Singapore and Finland, are either a city-state or a small economy, making Korea's increase effectively the largest among major nations.
The rapid rise in the debt ratio reflects GDP growth failing to keep pace with debt accumulation. According to the Ministry of Economy and Finance, following the government's announcement of expansionary fiscal policy, national debt is projected to grow by 8.7 percent in 2026, 8.3 percent in 2027, 8.8 percent in 2028, and 7.5 percent in 2029. However, nominal GDP growth is expected to remain at just 3 to 4 percent annually during this period. With national debt growth exceeding nominal GDP growth by more than 4 percentage points each year, the deficit ratio will continue to widen.
Rising fiscal deficits mean the government must allocate more budget to principal and interest payments, triggering increased government bond issuance that can lead to higher interest rates. The United States, which has long suffered from chronic fiscal deficits, has seen its 30-year Treasury yield trending upward. France, whose sovereign credit rating was downgraded in September due to fiscal concerns, has also seen its 30-year government bond yield rise by 0.3 percentage points over the past three months. In Korea, with next year's budget reaching a record 728 trillion won ($537 billion) and the government expected to issue approximately 110 trillion won in deficit-covering bonds, the 30-year Korea Treasury Bond yield has jumped 0.8 percentage points over the past year.
Fiscal deficit burdens also affect exchange rates and inflation over the long term. Currency issuance may increase to ease debt repayment burdens, putting pressure on inflation and the won's value.
"A surge in government bond yields raises borrowing costs, which affects private sector financing and leads to reduced investment in both public and private sectors," said Yeom Myung-bae, professor of economics at Chungnam National University. "Additionally, if money supply increases through expanded bond issuance, this will push up prices and could result in a weaker won."
