Foreign Debt of 2004 Expected to Exceed 200 Trillion Won

The government forecasted that Korea’s foreign debt will exceed 200 trillion won by the end of this year, which equals 26.1 percent of its GDP.

Moreover, the drastic upward trend in foreign debt is expected to continue, owing to economic stagnation, which makes it more difficult to pay off the debt. This is because the annual growth rate in national tax revenue is expected to have a drastic decline from 2004 to 2008.

The Ministry of Planning and Budget announced yesterday that foreign debt is expected to reach 203.6 trillion won by late 2004 with a 22.9 percent increase compared to late 2003, according to the “tentative plan for national finance management (2004-2008).”

This figure is 12.3 trillion won higher than the one suggested by the budget ministry in late June, which was 191.3 trillion won.

Compared to 2003, the foreign debt this year increased by 37.9 trillion won, and the ratio of the foreign debt to GDP increased by 3.1 percent. In addition, it is 3.38 times larger than the 60.3 trillion won of late 1997, when foreign exchange risk occurred.

Accordingly, the share of foreign debt per person, the foreign debt divided by the estimated population in late 2004, is 4.21 million won, 760,000 won higher than that of a year ago.

According to analysis, deficit-natured debt that is to be paid later by taxes collected from the people, such as national deficit loans and national refunding public fund bonds, amounts to 77.5 trillion won, 9.9 percent of GDP.

However, it was anticipated that the growth in national tax revenue, which is needed to redeem the national debt, will decrease due to continued economic stagnation.

As for tax revenues, which account for the largest proportion of national revenue, the budget ministry anticipated that its annual growth rate will be lowered to eight or nine percent in 2004-2008 compared to 1999-2003 (12.7 percent)

In regard to this, one of the budget ministry authorities said, “There is no major problem as the ratio of national debt to our GDP is much lower than the average of OECD member countries, which is 78.2 percent.”

National debt includes money that the government and local self-governing bodies borrow from the Bank of Korea or private organizations through loaning or issuing bonds, and the money that local self-governing bodies borrow from the central government. The growth in national debt is highly possible of becoming an obstacle to national finance management because it increases interest payments.

Jin-Hup Song jinhup@donga.com