National debt surpassed 1,300 trillion won for the first time last year. The growth rate far exceeded those of major economies, amplifying warnings over fiscal soundness.
The Ministry of Economy and Finance (MOEF) said Tuesday it approved the "FY2025 National Settlement Report" at a Cabinet meeting.
According to the settlement, total revenue came in at 637.4 trillion won and total expenditure at 684.1 trillion won. The consolidated fiscal balance recorded a deficit of 46.7 trillion won. The managed fiscal balance, which reflects the government's actual fiscal position, posted a deficit of 104.2 trillion won, remaining above the 100 trillion won mark for the second consecutive year.
National debt expanded in both scale and pace. Combined central and local government debt reached 1,304.5 trillion won ($952 billion), up 129.4 trillion won from the previous year, marking an 11.0% increase. During 2023 and 2024, when the government maintained a sound fiscal stance, the annual increase had slowed to the 50 trillion to 60 trillion won range. However, the figure expanded again last year as government bond issuance rose under an expansionary fiscal policy that included a supplementary budget.
The national debt-to-GDP ratio rose 3 percentage points to 49%. Notably, the pace of increase outstripped those of major economies. Over the same period, U.S. federal debt grew 6.34% and Japan's increased just 1.86%.
Experts are focusing on the speed of debt accumulation. "If the trend of debt growing faster than GDP continues, it could weigh on the country's sovereign credit rating," said Huh Jung, a professor of economics at Sogang University.
Annual Debt Increase of 100 Trillion Won May Become 'New Normal'…Debt Ratio Could Hit 60% in Four Years
The most pressing problem with Korea's fiscal outlook is the excessively rapid pace of national debt growth. Experts warn that if the Lee Myung-bak government pursues expansionary fiscal policy throughout its term, the treasury may be too depleted to mount emergency measures when the next crisis — comparable to COVID-19 or a conflict like the Iran war — strikes.
According to MOEF's "FY2025 National Settlement Report," Korea's national debt rose from 1,175 trillion won at the end of 2024 to 1,304.5 trillion won at the end of 2025, recording an 11.0% increase.
Over the same period, U.S. debt grew from $36.2186 trillion to $38.514 trillion, a 6.34% increase. Japan's rose from 1,317.6365 trillion yen to 1,342.172 trillion yen, a gain of just 1.86%. Taiwan's debt is also estimated to have grown at around 1% on a budget basis. The gap in growth rates versus major economies has widened markedly.
The picture is similar compared with non-reserve-currency nations. According to the International Monetary Fund's (IMF) World Economic Outlook (WEO), the increase in Korea's debt-to-GDP ratio from 2019 to 2025 was 16 percentage points, exceeding Germany (7 percentage points), Italy (4 percentage points), and France (14 percentage points).
Experts warn that if the structure in which debt growth consistently outpaces economic growth becomes entrenched, it could become a burden on the sovereign credit rating.
The revenue structure is also fragile, analysts say. Recent gains in tax revenue have relied heavily on corporate tax and capital gains tax driven by the semiconductor cycle and stock market boom. A slowdown could quickly erode fiscal conditions. Additionally, analysts note that liquidity injected through supplementary budgets and other measures has exceeded the scale of government bond repayments, meaning fiscal expansion could put pressure on prices, interest rates, and exchange rates.
"Recent growth has also been largely driven by booms in specific industries such as semiconductors, making it difficult to view as a structural improvement," Huh of Sogang University said. "Along with introducing a fiscal rule, the government needs to reduce consumption-oriented spending and shift the fiscal structure toward investment that leads to productivity gains."
The medium- to long-term fiscal trajectory also shows a steep upward path. The IMF projects Korea's general government debt (D2 basis) ratio 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 fiscal rule's red line — within four years.
"With an aging population and low birth rates, the growth rate is declining while welfare spending is structurally bound to expand," said Kim Ho-jung, a researcher at Yuanta Securities. "In a situation where the tax base is constrained by the economic cycle 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: "Although the current debt level is lower than that of advanced economies, if the pace of increase is maintained, the debt-to-GDP ratio could exceed 60% within about five years."
Rapidly rising national debt could also weigh on Korea's external credibility. Currently, the three major international credit rating agencies — Moody's, Standard & Poor's, and Fitch — maintain Korea's sovereign credit ratings at Aa2, AA, and AA- respectively, all with a "stable" outlook.
However, these agencies commonly identify the speed of debt accumulation as a key risk. Moody's pointed to rising debt ratios stemming from expansionary fiscal management. Fitch assessed that continued debt growth without structural reform could exert downward pressure on the credit rating. S&P also cited public enterprise debt and geopolitical risks as major risk factors.
On the other hand, some caution against simple crisis narratives. Shin Se-don, a professor of economics at Sookmyung Women's University, said: "During the Moon Jae-in administration, the national debt ratio also rose rapidly, yet the credit rating was actually upgraded. It is difficult to conclude that a rating downgrade will follow from debt growth alone."
