South Korea maintains a relatively low national debt-to-GDP ratio; however, factors such as hidden debts suggest that the actual fiscal burden may be larger. The following points can be considered in detail:

1. Official National Debt Ratio

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• As of 2023, South Korea’s national debt stood at 51.5% of GDP, which is comparatively lower than other developed countries¹.
• By 2025, this ratio is expected to reach 54% and is projected to gradually increase over the long term¹.

2. Hidden Debt and Household Debt Issues

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• South Korea’s household debt has reached 93.7% of GDP, which is one of the highest globally². In particular, mortgage loans are identified as a major cause.
• Unique rental systems and the increase in credit card usage in South Korea also exacerbate household debt issues³.
• High household debt can lead to slowed economic growth and instability in the financial system, which can indirectly affect government finances⁴.

3. Corporate Debt

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• The debt in South Korea’s non-financial corporate sector is 125.2% of GDP, making it the fourth highest globally, following Hong Kong, China, and Singapore⁵.
• Rapid growth in non-bank loans, particularly in the real estate and construction sectors, raises concerns of financial instability⁵.

4. Other Financial Burdens

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• Structural issues, such as rising welfare expenditures due to an aging population, may increase the fiscal burden on the nation in the long run⁶.
• The government has introduced various support measures to invigorate the economy; however, these could potentially lead to additional fiscal deficits⁷.

Conclusion

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While South Korea’s official national debt ratio is low, hidden financial factors such as household and corporate debt are exacerbating economic risks. Therefore, a comprehensive approach that includes the debt problems of households and corporations is necessary for evaluating fiscal health beyond merely the national debt ratio.

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How Do Other Countries Compare in Household and Corporate Debt?

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South Korea’s household and corporate debts rank among the highest in the world; however, comparisons with other major countries reveal various characteristics. Below is a summary of household and corporate debt levels in key countries.

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1. Household Debt

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• South Korea: As of 2024, household debt reaches 100.5% of GDP, one of the highest levels globally. This is comparable to Switzerland (126.3%), Australia (109.6%), and Canada (102.3%) or slightly lower⁸⁹.
• Switzerland: With 126% of GDP, it has the highest household debt ratio in the world, attributed to high living costs and housing-related loans¹⁰.
• Australia: At 109.6% of GDP, increased borrowing related to rising housing prices is the main cause⁸¹⁰.
• United States: Household debt is 74.4% of GDP, which is lower than in Korea or Switzerland, but still high. The U.S. trend shows a decrease in household debt following the 2008 financial crisis, although it has recently started to increase again¹⁰.
• Major European Countries: Germany and Spain stand at around 50-55%, France at 66%, and Japan at 68%, relatively low levels¹⁰.

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2. Corporate Debt

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• South Korea: Corporate debt is at 113.9% of GDP, making it the fifth highest globally. This is largely attributed to loans related to project financing⁸.
• China: Corporate debt is approximately 138.9% of GDP, reflecting the economy’s state-owned enterprise structure and extensive borrowing¹¹.
• Hong Kong: Corporate debt reaches about 210% relative to GDP, influenced by its financial and real estate-centric economic structure¹¹.
• United States: Corporate debt totals around $12 trillion, accounting for roughly 74.4% of GDP. Although this is lower than Korea or China, debt concentration is high in specific industries (media, technology, healthcare)¹²¹³.

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3. Global Perspective

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• Globally, both household and corporate debts have been on the rise over recent years. Particularly in developed nations, low-interest rate environments and rising asset prices have fueled this increase¹⁰¹¹.
• However, some countries have stabilized through deleveraging after the financial crisis (e.g., the U.S., Spain)¹⁰.

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Conclusion

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South Korea’s household and corporate debts rank among the highest globally, especially household debt, which far exceeds levels in other developed nations. While debt issues are significant in other countries, the nature and risk factors differ according to each nation’s economic structure and policies. South Korea faces high debt burdens in both household and corporate sectors, emphasizing the need for policy efforts to ensure financial stability.

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Why Are Household and Corporate Debt High in South Korea?

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The high household and corporate debt in South Korea stems from various factors, including economic structure, policies, and market conditions. Major causes can be summarized as follows.

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Reasons for High Household Debt

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1. Prolonged Low-Interest Rates and Increased Asset Investment

   • The prolonged low-interest environment has led to increased asset investment (especially in real estate) through loans. This has driven individuals to leverage their borrowing capacity¹⁴¹⁵¹⁶.
   • With rising real estate prices, phenomena like “borrowing everything” and “investing with debt” have proliferated, dramatically increasing household debt¹⁴¹⁶.

2. Preference for Household Loans by Financial Institutions

   • Financial institutions have shown a preference for household loans due to their higher profitability and lower risk compared to corporate loans. This became even more evident in the economic slowdown following COVID-19¹⁴¹⁶.
   • Relatively relaxed regulations on credit loans and easy maturity extensions have also contributed to the surge in loans¹⁴¹⁶.

3. Insufficient Regulations and Policy Shortcomings

   • Regulations aimed at curbing household debt increases were inadequately implemented at early stages. For instance, many exceptions to the Debt Service Ratio (DSR) regulations allowed for unchecked growth in loans¹⁴¹⁵¹⁶.

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Reasons for High Corporate Debt

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1. Expansion of Real Estate-Centric Lending

   • Following the real estate boom in the mid-2010s, loans for real estate-related ventures surged, particularly credit supplies for rental and development businesses in the non-bank sector, significantly contributing to corporate debt¹⁷¹⁸¹⁹.
   • The influx of capital into the low-productivity real estate sector raises concerns about the quality of corporate debt¹⁸¹⁹.

2. Increased Financial Support During COVID-19

   • Financial support for individual business owners and SMEs expanded during the COVID-19 pandemic, leading to a significant increase in corporate debt¹⁷²⁰²¹.

3. Growing Demand for Facility Investments and Working Capital

   • The rising demand for facility investments and working capital in major industries (e.g., semiconductors, secondary batteries) has increased debt concentration among large corporations. While this reflects a positive investment for future growth, it also poses a burden across the economy¹⁸²².

4. Problems with Marginal Enterprises

   • An increase in the debt proportion of marginal enterprises with low interest coverage ratios results in a qualitative deterioration of corporate debt that poses additional risks to economic stability¹⁷¹⁹.

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Conclusion

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The rise in both household and corporate debt in South Korea has been driven by the low-interest environment, overheating in the asset market, financial institutions’ lending preferences, and capital flow concentrated in real estate and policy-related aspects. These issues pose risks for economic growth and financial instability, making deleveraging (debt reduction) and structural improvements in both households and corporations essential.