Last year, government debt was recorded at 1,175.2 trillion won. This represents an increase of more than 48 trillion won compared to the previous year (1,126.8 trillion won), setting a new record high.
According to the '2024 fiscal year settlement of account' reviewed and approved by the government at the Cabinet meeting on the 8th, last year, central government debt stood at 1,141.2 trillion won, an increase of 48.5 trillion won compared to the previous year's settlement (1,092.5 trillion won). Last year, the net debt of local governments was recorded at 34.1 trillion won, which is a decrease of 2 trillion won compared to the previous year.
Last year, the ratio of government debt to gross domestic product (GDP) was 46.1%. This is 1.3 percentage points lower than the previous estimate (47.4%).
◇ The issuance of foreign currency-denominated bonds was not realized, and the decrease in dwellings was less than expected for the increase in government debt.
Although government debt reached a record high, the government notes that it did not increase as much as anticipated last year. When the budget was prepared last year, it was expected that government debt would increase by 6.9 billion won over the year, but in fact, it only increased by 48.5 trillion won.
However, it is hard to see that the government took policy measures for this purpose. The issuance of foreign currency-denominated bonds did not occur due to delays in legislative action by the National Assembly, and the issuance of dwellings was also lower than expected due to the decline in the real estate market.
Previously, the government included a plan for the issuance of 18 trillion won in foreign currency-denominated bonds in last year's budget. However, related legislation was delayed until the end of last year in the National Assembly, so the bonds were not issued. The bill passed the National Assembly's plenary session on Dec. 10 last year, allowing the Ministry of Economy and Finance to prepare for the issuance of the foreign currency-denominated bonds only in January of this year.
Foreign currency-denominated bonds are a type of government bond issued and guaranteed by the government to stabilize the foreign exchange market. Generally, when the value of the dollar rises, the government issues dollar-denominated bonds, and when the value of the Korean won strengthens, it issues won-denominated bonds to finance the Foreign Exchange Stabilization Fund. The government utilized the Foreign Exchange Stabilization Fund to cover the revenue shortfall for 2023-2024. As the dollar is strong and foreign exchange reserves are sufficient at around $400 billion, there are no problems. Some express concern that "if the volatility of the foreign exchange market expands, the response capacity will be insufficient."
Last year, the issuance of dwellings also fell short of expectations. Dwellings are a type of government bond issued to finance public housing projects, such as loans for low-income housing. They are mandatory purchases during real estate transactions, such as for apartments. However, last year's real estate transactions were lower than expected, leading to a decrease in the issuance of dwellings. The government had anticipated issuing 83.7 trillion won worth of dwellings last year, but in reality, it only issued 79.1 trillion won.
◇ Used funds to cover 31 trillion won revenue shortfall.
The government also acknowledged that "issuing foreign currency-denominated bonds and dwellings was not a policy measure to reduce government debt," but explained that "not issuing government bonds despite lower revenue than budgeted is indeed a measure to restrain the increase in government debt."
The Ministry of Economy and Finance utilized available resources from the fund and special accounts totaling 17 trillion won to cover a revenue shortfall of 31 trillion won last year. This included 4 trillion won from the Foreign Exchange Stabilization Fund reserved for market stability, approximately 4 trillion won rolled over from the Public Capital Management Fund in 2023, and 3.2 trillion won from surplus funds of the housing & urban fund accumulated through savings account deposits. Additionally, 1.8 trillion won from the Environmental Improvement Special Account, 1.6 trillion won from the Industrial Accident Compensation Insurance Fund, 1.1 trillion won from the Transportation Facilities Special Account, 1 trillion won from the Deposit Insurance Fund repayment fund, and 300 billion won from the Government Properties Management Fund were also mobilized.
However, the utilization of government funds has led to ongoing debates among experts. There are arguments that it is preferable to use funds instead of issuing government bonds, while criticisms suggest that the government is relying on an easy workaround.
Seok Byeong-hoon, a professor at Ewha Womans University, said, "Rather than issuing government bonds and increasing the burden on future generations, it is advisable to utilize available funds to cover the shortfall and replenish them when the economy recovers."
On the other hand, Kim Sang-bong, a professor at Hanseong University, pointed out that "while the supplementary budget must be approved by the National Assembly, funding through the utilization of funds is possible without approval, allowing the government to easily access it." He emphasized that "the use of funds by the government is a kind of loophole" and that "the system should be improved to require National Assembly approval for fund use."