This year, the national liability ratio of South Korea has exceeded the average of non-reserve currency countries for the first time in relation to the country's gross domestic product (GDP). The liability ratio is expected to rise rapidly, approaching 60% by 2030.
According to the International Monetary Fund (IMF) report titled "Fiscal Monitor" published in April, South Korea's general government liability ratio is expected to be 54.5% this year. This figure exceeds the average (54.3%) of 11 non-reserve currency countries classified as developed by the IMF.
General government liability includes a broader definition of government debt, which primarily refers to national debt (D1: central and local government accounting and fund liabilities) and also encompasses the liabilities of non-profit public institutions. This is mainly used by the IMF and the Organisation for Economic Co-operation and Development (OECD) when comparing the liabilities of different countries.
It is the first time that South Korea's general government liability ratio has exceeded the average of non-reserve currency countries. In 2016, South Korea's general government liability ratio was 39.1%, lower than the average (47.4%) of non-reserve currency countries. However, it has risen rapidly since 2020 due to responses to COVID-19, fiscal expansion for economic recovery, and increased welfare expenditure.
The IMF expects South Korea's liability ratio to continue rising quickly. The IMF estimates that by 2030, South Korea's general government liability ratio will be 59.2%, exceeding the average forecast for non-reserve currency countries (53.9%) by more than 5 percentage points. Notably, South Korea is projected to see a 4.7 percentage point increase in its liability ratio over the next five years, the second highest increase among non-reserve currency countries following the Czech Republic (6.1 percentage points).
Typically, reserve currency countries often have favorable international financing conditions, resulting in liability ratios exceeding 100%. The United States (128.2%), Japan (231.7%), and the United Kingdom (106.1%) are representative examples. However, non-reserve currency countries tend to manage their liability ratios more conservatively due to lower demand for bonds and other securities compared to reserve currency countries.