Korea's national debt surpassed 1,300 trillion won ($960 billion) for the first time last year. The managed fiscal balance, a key gauge of the government's financial health, recorded a deficit exceeding 100 trillion won.
According to the national settlement report released on the 6th, total national debt (D1) — combining central and local government obligations — reached 1,304.5 trillion won, up 129.4 trillion won from the previous year. The managed fiscal balance posted a deficit of 104.2 trillion won, exceeding the 100 trillion won mark for the second consecutive year. Not even during the COVID-19 pandemic did the managed fiscal deficit surpass 100 trillion won for two straight years. Concerns are mounting that the nation's finances, burdened by massive debt, are becoming structurally entrenched.
The problem is that improving the deficit-mired fiscal balance will be no easier this year. The government is moving quickly to draft a supplementary budget to cushion economic shocks from the Iran war, while both ruling and opposition parties are racing to roll out spending plans. The Democratic Party of Korea has announced it will add programs not included in the government's supplementary budget proposal, such as residential solar panel distribution and revitalization of "Sunshine Income Villages." The People Power Party is pushing to expand the fuel tax cut from the current 15% to 30%. Both sides are engaged in election-driven handout competition.
With high oil prices and a weak won intensifying amid the Iran war, the ruling and opposition parties along with the government should focus on strengthening fiscal defenses while boosting economic growth. Given that this year's GDP growth forecast has fallen to the 1% range, fiscal pump-priming is certainly needed. Yet amid rapidly rising national debt, expanding populist spending to court voters ahead of local elections risks causing more harm than good. Excessive fiscal expansion leads to surging national debt and a downgrade in sovereign creditworthiness, ultimately boomeranging back. Last year, the debt-to-GDP ratio reached 49.0%. At this pace, it is highly likely that forecasts by international credit rating agencies such as Moody's — projecting the ratio will breach 50% this year and exceed 60% by 2030 — will become reality.
The trajectory of the Iran war remains highly uncertain. The need to strike a balance between expansionary fiscal policy to address livelihood hardships and fiscal soundness for future generations has never been more pressing. Both parties must resist the temptation of election-driven spending sprees ahead of local elections. Rather than wasting fiscal resources on a "giveaway" supplementary budget designed with local elections in mind, the ruling and opposition parties should join forces for fundamental reforms — including public sector restructuring, spending efficiency improvements, and stronger fiscal rules.