IMF Flags South Korea for Rising Debt, Sees Ratio Reaching 63% of GDP by 2031

IMF Publishes Fiscal Monitor Report

The International Monetary Fund warned that South Korea’s government debt ratio will rise rapidly.

According to the IMF and South Korea’s budget authorities on April 15, the IMF said in its latest Fiscal Monitor report that fiscal paths are diverging sharply among advanced economies excluding the US. It singled out South Korea and Belgium as countries facing rising debt risks.

The report said overall public debt across advanced economies will stabilize at around 94% of gross domestic product over the medium term, though country-by-country projections differ.

It projected that debt ratios in Spain and Japan will fall by 10 to 14 percentage points by 2031, helped by favorable interest rate and growth dynamics.

By contrast, the IMF said Belgium and South Korea, despite starting from different levels, will see significant increases in debt ratios. It projected Belgium’s debt will exceed 122% of GDP and South Korea’s will reach 63% by 2031.

That is a stronger warning than in the IMF’s report released in November last year, when it projected South Korea’s central government debt would gradually rise to 59% of GDP by 2030.

Still, South Korea’s debt-to-GDP outlook was revised down somewhat after the IMF raised its forecasts for nominal growth this year and next year.

The IMF projected South Korea’s general government debt ratio, or D2, at 61.7% in 2030, down 2.6 percentage points from its October forecast of 64.3%.

Its 2031 projection was 63.1%.

South Korea’s budget office said the forecast appears to partly reflect the positive effects of a virtuous cycle driven by performance-based and strategic fiscal management.

Shin Hyun-bo, Hankyung.com reporter, greaterfool@hankyung.com