[비즈한국] For the first time this year, it is projected that South Korea's national debt-to-GDP ratio will experience a 'Dead Cross'—a reversal where it exceeds the average of the 10 advanced nations that do not use a reserve currency (such as the US dollar, Japanese yen, or the euro). This indicates that the nation's fiscal situation is deteriorating rapidly, prompting calls for greater attention to fiscal soundness.
In particular, if debt surges, government bond interest rates could skyrocket, potentially leading to a vicious cycle where debt begets more debt. As President Lee Jae-myung has expressed his intention to continue an expansionary fiscal policy next year, following this year, controversies and concerns surrounding fiscal soundness are expected to persist.
On December 11 last year, during a work report session at the Ministry of Economy and Finance, President Lee asked Deputy Prime Minister and Minister of Economy and Finance Koo Yoon-cheol, "To ensure next year's (2026) growth rate exceeds the potential growth rate, should we implement an expansionary fiscal policy, or would a relaxed fiscal policy suffice?" Deputy Prime Minister Koo responded that an expansionary fiscal policy would be necessary for the year after next as well. President Lee then asked again, "Are we in a situation where we must continue an expansionary fiscal policy the year after next (2027)?" to which Koo replied, "Yes.
President Lee stated, "Under current conditions, because the growth rate is hitting bottom and trending downward, national effort is needed to curve it upward," adding, "Ultimately, we have no choice but to continue an expansionary fiscal policy for the time being," signaling his intent to continue such policies into 2027. This means that for the Lee Jae-myung administration's first budget, they intend to increase spending beyond this year's budget of 728 trillion won, which surpassed 700 trillion won for the first time in history.
The problem is that South Korea has reached a turning point this year where its fiscal soundness has fallen below the average of the 10 other advanced nations that do not use a reserve currency. According to the 'Fiscal Monitor' report recently released by the International Monetary Fund (IMF), South Korea's national debt-to-GDP ratio last year was 53.4%.
This was 2.1 percentage points lower than the 55.5% average debt-to-GDP ratio of the 10 nations (Sweden, Denmark, Norway, Iceland, Israel, New Zealand, Czech Republic, Malta, Singapore, and Hong Kong) among the 35 countries classified by the IMF as advanced, excluding reserve currency nations (US, UK, Japan, Australia, and eurozone countries) and South Korea itself. This meant that South Korea's fiscal soundness was better than the average of these 10 advanced non-reserve currency nations.
However, while South Korea's national debt ratio is expected to rise by 3.3 percentage points to 56.7% this year, the average of the 10 advanced non-reserve currency nations is projected to rise by only 0.7 percentage points to 56.2%. Consequently, a 'Dead Cross' will occur for the first time in history this year, with South Korea's national debt ratio becoming 0.5 percentage points higher than the average of those 10 countries.
In particular, this reversal is expected to worsen over time. According to the IMF, while South Korea's national debt ratio is set to rise to 58.9% in 2027, the average for the 10 advanced non-reserve currency nations will be 56.3%, a gap of 2.6 percentage points. By 2028, South Korea's ratio will hit 60.9%, surpassing the 60% mark for the first time, while the 10-nation average holds at 56.3%, widening the gap to 4.6 percentage points.
From then on, as the national debt ratios of the 10 advanced non-reserve currency nations decrease, the gap will further widen. In 2029, South Korea's debt ratio is projected to rise to 62.7% while the average for the 10 nations improves to 56.0%, widening the gap to 6.7 percentage points. By 2030, South Korea's ratio will reach 64.3%, while the 10-nation average stays at 56.0%, expanding the difference to 8.3 percentage points.
If South Korea's debt ratio continues to worsen compared to other non-reserve currency nations in this manner, government bond interest rates will rise, increasing the interest burden the state must pay, which leads to a vicious cycle of further debt. The Korea Development Institute (KDI), in its report 'The Relationship between Government Bond Investor Composition and Fiscal Crisis,' pointed out that "when debt exceeds a certain threshold, the interest burden leads to additional debt growth, causing the debt scale to become uncontrollable."
In the same report, the KDI warned that South Korea's government bond interest rate could rise to 4.847% by 2030 and 6.952% by 2040. Considering the KDI's forecast that debt will reach the 2,000 trillion won level by 2030, this would mean interest costs alone for the year 2030 would amount to 97.4 trillion won.