S. Korea seeks to reduce state guaranteed debt to below 10 tln won by 2025

September 3, 2021

South Korea said Friday it plans to reduce outstanding debt guaranteed by the state to below 10 trillion won (US$8.63 billion) by 2025 as part of efforts to enhance fiscal soundness.

The debt of which payment is guaranteed by the government is expected to reach 11.3 trillion won this year and increase to 19.4 trillion won next year, according to the Ministry of Economy and Finance.

Such debt is forecast to decline starting in 2023, and the government plans to curtail it to 9.7 trillion won by 2025, the ministry said in its 2021-25 debt management plan.

The state guaranteed debt is not included in the national debt, which covers bond sales and financial borrowing by central and provincial governments. But if debtors default on debt payments, such liability can be converted into national debt.

The ministry said the fall is expected as a state bailout fund related to the 1997-98 Asian financial crisis plans to repay the debt sooner than scheduled.

The debt guaranteed by the government snowballed to an outstanding 106.8 trillion won in 2001 as the country injected taxpayers’ money to bail out troubled financial firms during the Asian financial turmoil.

The national debt is expected to top 1,000 trillion won next year as the government seeks to create a record high budget of 604.4 trillion won.

The sovereign debt is forecast to reach 1,068.3 trillion won next year, up from an estimate of 965.3 trillion won for this year, according to the finance ministry.