SEOUL, KOREA - Korea's sovereign debt-to-GDP ratio was 34 percent last year. This is lower than any other economies including the United States with more than 100 percent, Japan in excess of 200 percent, or Germany with 86 percent. Lee Tae-sung, the head of fiscal management bureau at the Ministry of Strategy and Finance, said, "In a word, Korea's sovereign debt level is very healthy."
However, so many commentators in the private sector beg to differ. Cho Sung-won, a research fellow with the Korea Capital Market Institute, said, "Small open economies like the Netherlands and Korea must maintain their government debt levels within 35.2 percent." That's because small economies with open financial markets are more vulnerable to external shocks, which thus calls for a lower debt-to-GDP ratio. According to this view, Korea has already surpassed the danger level.
Citigroup has also published a report warning Korea's sovereign debt is rising too fast. The debt ratio has jumped almost 10 percentage points for eight years from 24.6 percent in 2004. "Add to this the rising pension burden for the aging population, the government's debt level will skyrocket to 218.6 percent by 2060," the report said. "If the government bond rates rise, that ratio may go further up to 299.8 percent," it added.
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