September 03, 2020 12:06
Korea's per-capita sovereign debt is forecast to soar from W16 million this year to W140 million by 2060 unless governments slam on the brakes (US$1=W1,187). That would mean the ratio of sovereign debt to GDP spirals from 43.5 percent this year to 81 percent over the period.
The forecast comes from the Ministry of Economy and Finance's own long-term forecast unveiled on Wednesday.
It expects Korea's sovereign debt to rise from W839 trillion at the end of this year to W4.9 quadrillion by 2060. Considering the expected size of Korea's population by then, per-capita sovereign debt will surpass W100 million.
The ministry said that the sovereign debt ratio could rise to 92 percent by 2060 if welfare and other obligatory expenditures continue to increase incrementally by around W30 trillion after the middle of this decade. The sharp increase will be due to snowballing welfare spending as economic growth stagnates amid a low birthrate and aging population.
Statistics Korea expects the country's population to decline from 51.8 million this year to 50.9 million by 2040 and to 42.8 million by 2060. More importantly, the economically active population of people aged 16 to 64 will shrink from 37.4 million now to just 20.6 million in 2060.
That could result in Korea's economic growth falling from 2.3 percent in the 2020s to 1.3 percent in the 2030s, 0.8 percent in the 2040s and just 0.5 percent in the 2050s.
As recently as 2015, the government projected Korea's sovereign debt ratio at 62.4 percent by 2060. But just five years on, the projection has skyrocketed by around 20 percentage points because the population decline and low growth progressed faster than expected, while fiscal spending surged due to lavish welfare programs.
But even the new forecast could be too optimistic. Hong Ki-yong at Incheon National University said, "Considering the increasing trend for welfare expenditures due to an aging population, there is a high chance that sovereign debt will keep rising."
The brunt will be borne by future governments. After increasing the government's budget by 8.5 percent for 2021 this week and a projected six percent or so for the following year, the ministry says increases will be limited to around four percent thereafter.
But that will no longer be the current government's decision because President Moon Jae-in's single five-year term ends in 2022.
- Copyright © Chosunilbo & Chosun.com