The biggest problem with South Korea's public finances is that the national debt is growing far too fast. Experts warn that if the Lee Jae-myung administration pursues expansionary fiscal policy throughout its term, government coffers may be too depleted to mount emergency measures when the next crisis — comparable to COVID-19 or the Iran war — strikes.
According to the "Fiscal Year 2025 National Settlement Report" released by the Ministry of Economy and Finance on the 6th, Korea's national debt grew from 1,175 trillion won at the end of 2024 to 1,304.5 trillion won ($961 billion) at the end of 2025, an increase of approximately 11.0%.
Over the same period, U.S. national debt rose from $36.2186 trillion to $38.514 trillion — an increase of 6.34%. Japan's debt grew from 1,317.6365 trillion yen to 1,342.172 trillion yen, a rise of just 1.86%. Taiwan's debt is also estimated to have increased by only around 1% on a budget basis. The gap in the pace of debt growth compared with major economies has widened markedly.
Even compared with non-reserve-currency nations such as Canada and Australia, Korea's pace of increase is steep. According to the International Monetary Fund's World Economic Outlook (WEO) report, Korea's national debt-to-GDP ratio rose 16 percentage points from 2019 through 2025. That increase exceeds Germany (7 percentage points) and Italy (4 percentage points), and is larger than France's (14 percentage points).
Experts agree that if a structure in which debt grows faster than GDP becomes entrenched, it could weigh on the country's sovereign credit rating.
In particular, Korea's recent revenue growth has been heavily dependent on higher corporate tax and capital gains tax driven by a semiconductor boom and stock market rally, raising concerns that fiscal conditions could deteriorate rapidly in an economic downturn. Analysts also note that liquidity injected into the market through supplementary budgets and other measures far exceeds the scale of government bond repayments, meaning fiscal expansion could put pressure on inflation, interest rates, and the exchange rate.
"Recent growth has also been largely driven by booms in specific industries such as semiconductors, making it difficult to view as a structural improvement," said Huh Jung, a professor of economics at Sogang University. "Along with introducing fiscal rules, we need to reduce consumption-oriented spending and shift the fiscal structure toward investment that can lead to productivity gains."
Indeed, the IMF has projected that Korea's national debt ratio on a general government debt (D2) basis will rise to 53.8% in 2027, 56.2% in 2028, and 58.0% in 2029, surpassing 60% in 2030. This trajectory would reach the 60% threshold — widely regarded as the red line under fiscal rules — within four years.
"As aging and low birth rates drag down growth, welfare spending is structurally bound to expand," said Kim Ho-jeong, a researcher at Yuanta Securities. "With the revenue base constrained by economic cycles and demographic structure, it will be difficult to keep pace with the growth in mandatory spending, and the fiscal burden could escalate rapidly."
Choi Byung-ho, a professor of economics at Pusan National University, also warned: "Currently, the debt level remains low compared with the advanced-economy average, but if this pace of increase continues, the national debt-to-GDP ratio could exceed 60% within about five years."
Concerns are also being raised that rapidly rising national debt could weigh on Korea's external credibility, which is vital for the economy. Currently, the three major international credit rating agencies — Moody's, Standard & Poor's (S&P), and Fitch — maintain Korea's sovereign credit ratings at Aa2, AA, and AA- respectively, all with a "stable" outlook.
However, the rating agencies uniformly identify the pace of debt accumulation as a key risk. Moody's noted that fiscal policy is being managed expansively and the debt ratio is rising rapidly. Fitch warned that if the government debt ratio continues to climb without structural reforms or productivity improvements, it could exert downward pressure on the credit rating. S&P, while assessing that fiscal space remains adequate, cited debts of state-owned enterprises and other government-related institutions, along with geopolitical risks, as major risk factors.
On the other hand, some caution against simplistic alarmism. "Even though the national debt-to-GDP ratio rose rapidly after the Moon Jae-in administration took office, the credit rating actually went up," said Shin Se-don, a professor of economics at Sookmyung Women's University, drawing a line against concluding that rising debt alone would lead to a rating downgrade.