So far this year, the government has borrowed approximately 71 trillion won from the Bank of Korea. This was a temporary loan to fill a budget gap, marking the highest level in 15 years. As a result, the loan interest nears 45 billion won.
According to the 'Status of Temporary Loans and Interest to the Government' submitted to the National Assembly's Administration and Security Committee by the Bank of Korea on the 6th, the amount borrowed by the government from the Bank of Korea from January to April this year is 70.7 trillion won. This is the largest figure recorded in 15 years, since 2011, which can confirm the cumulative loan size for the period from January to April.
The cumulative loan amount from January to April last year, evaluated as a historic tax revenue shortage, was 60 trillion won, which is more than 10 trillion won less than this year. The cumulative loan amount from January to April in 2020, when expenditures were high due to COVID-19, was only 25.9 trillion won.
However, the government has fully repaid the 75.7 trillion won, which includes the 50 trillion won loan balance carried over from last year.
The Bank of Korea's temporary loan system to the government is a means used to address temporary cash shortages caused by the timing mismatch between income and expenditure. The large scale of this loan indicates that there has been a frequent need for the government to find temporary resources due to insufficient tax revenue compared to expenditures.
The limit and conditions of the temporary loans to the government were decided by the Bank of Korea's Monetary Policy Committee earlier this year. The limit for this year is 50 trillion won, which includes 40 trillion won for the consolidated account, 2 trillion won for the special account for grain management, and 8 trillion won for the Public Capital Management Fund.
The interest rate for the temporary loan is calculated by adding 0.10 percentage points (p) to the average yield of the 91-day Bank of Korea Monetary Stability Bond in the last month of the quarter immediately preceding the loan. According to this formula, for the first quarter of this year, the government is required to pay 44.53 billion won in interest to the Bank of Korea for the temporary loan. Last year, the government paid 209.28 billion won in interest for temporary loans to the Bank of Korea.
The Ministry of Economy and Finance states that temporary loans are one of the normal financial operation tools, a system that compensates for the timing discrepancies of revenue collection and expenditure execution. However, there is criticism that if the government frequently borrows large sums from the Bank of Korea and this money remains in circulation for a long time, increased liquidity could make it challenging to manage inflation.