🚨 Korea's Total Debt Surge
Today Korean Economic News for Beginners | 2025.11.06
0️⃣ 248% of GDP, #1 in OECD Debt Growth - 'Debt Trap' Warning
📌 1,800 Trillion Won Increase in 5 Years...Deficit Debt and Marginal Companies Rising Together
💬 Korea's total debt, including government, corporate, and household debt, surged over 40% in five years, reaching 248% of GDP. Total debt increased from about 4,500 trillion won in 2019 to over 6,300 trillion won in 2024 - an increase of more than 1,800 trillion won. This is the first time Korea has exceeded the G20 average of 240%. While most developed countries have been reducing debt after the COVID-19 pandemic, Korea recorded the largest debt increase among OECD countries. The problem is that the quality of debt is also worsening. Government deficit debt increased by nearly 400 trillion won in five years, and the proportion of marginal companies that cannot even pay interest for three consecutive years has exceeded 20%. Experts warn that "the structure of paying debt with debt is deepening, and urgent economic reform is needed."
1️⃣ Easy Explanation
Warning lights are flashing that Korea is falling into a 'debt trap.' As the government, companies, and households all increased their debt at the same time, debt increased by more than 1,800 trillion won in just 5 years. This is the same as every Korean person taking on an additional 35 million won in debt.
Let me first explain what total debt is. Total debt is the sum of government debt (government bonds), corporate debt (corporate bonds and loans), and household debt (mortgage loans and credit loans). Simply put, it's the total amount of debt the entire country has.
In 2019, Korea's total debt was about 4,500 trillion won. But in 2024, it exceeded 6,300 trillion won. That's a 40% increase in just 5 years. When compared to GDP (Gross Domestic Product, the money the country earns in a year), it's 248%. This means Korea has debt equal to 2.5 times what it earns in one year.
Let me give you an example. Suppose Mr. A has an annual salary of 50 million won. If Mr. A has 124 million won in debt, that's 248% of his annual salary. Even if he saves every penny of his yearly salary without spending anything, it would take 2.5 years to pay off the debt.
The bigger problem is that other countries are reducing their debt, but only Korea's debt is increasing rapidly. Advanced countries like the United States, Germany, and France are now reducing the debt they quickly accumulated during the COVID-19 pandemic. However, Korea had the fastest debt growth rate among OECD countries.
Why is this happening? We need to look at three main groups.
First, government debt. During COVID-19, the government spent a lot of money to provide emergency relief funds, help small business owners, and revive the economy. They couldn't cover all this money with taxes alone, so they issued government bonds. Government bonds are IOUs issued by the government - in simple terms, money the government borrows from citizens. The problem is that even though the pandemic ended, spending didn't decrease but actually increased. Money was continuously needed for welfare spending, defense costs, and future industry investments, so debt kept piling up.
Especially, something called 'deficit debt' increased significantly. Deficit debt is debt that occurs when the government spends more money (expenditure) than it collects in taxes (revenue). Since there's no set source to repay this, it must eventually be paid back with citizen taxes in the future. The fact that deficit debt increased by nearly 400 trillion won over the past 5 years means that the debt future generations must repay has increased by that much.
Second, corporate debt. Companies also increased their debt a lot. During COVID-19, the government provided emergency loans, and in a low-interest environment, companies found it easy to borrow money for investment. The problem is that many companies didn't make proper investments with the money they borrowed.
There's a concept called 'marginal companies.' These are companies that cannot cover their interest costs with operating profits for three consecutive years. Simply put, they're companies that can't even pay interest even when they make money. The proportion of such marginal companies has exceeded 20%. This means 1 out of 5 listed companies is essentially a troubled company.
What's the problem when marginal companies increase? These companies can't make new investments and are just struggling to repay debt. They can't hire new people or develop technology. The bigger problem is that if the economy worsens, these companies could collapse one after another. Then banks can't recover their loans, and the entire financial system could shake.
Third, household debt. Individuals also increased their debt a lot. The biggest cause was rising housing prices. As real estate prices rose, people trying to buy homes had to take out larger loans. With Seoul apartment prices exceeding 1 billion won, young people had to take on hundreds of millions of won in debt to buy their first home.
Also, as living costs increased due to rising prices, credit loans also increased. Since wages stayed the same while prices only rose, more people filled the gap in living expenses with loans. Household debt is particularly dangerous because when interest rates rise, the interest burden increases and more households can go bankrupt.
This is where a vicious cycle begins. When the government increases debt to stimulate the economy → companies borrow money to invest → individuals also borrow money to consume → in the short term, the economy appears to revive. However, growth created by debt like this is not sustainable. Debt must be repaid someday, and interest must continue to be paid.
Currently, Korea is stuck in a 'paying debt with debt structure.' The situation of borrowing new debt to pay interest on old debt is repeating. This is similar to credit card juggling. When the payment date for card A approaches, you get a cash advance from card B to pay card A, and when card B's payment date comes, you juggle it with card C. This way, debt doesn't decrease but continues to increase.
International comparisons show how serious Korea's situation is. The G20 average total debt ratio is 240%, but Korea has exceeded this at 248%. What's even more surprising is the growth rate. Most developed countries reduced debt after COVID-19, but Korea increased it the fastest.
We should look at Japan's case. After the real estate bubble burst in the 1990s, Japan tried to stimulate the economy with debt and ended up with government debt exceeding 260% of GDP. The result was a long recession called the 'Lost 30 Years.' The concern is that if Korea continues with the current trend, it could follow Japan's path.
Ultimately, what we need now is not to grow by increasing debt, but to improve debt efficiency and reform our economic structure. Even if it's painful right now, we need to slow down the debt growth rate, restructure marginal companies, and restore fiscal health to achieve sustainable growth.
2️⃣ Economic Terms
📕 Total Debt Ratio
Total debt ratio is the ratio comparing a country's total government, corporate, and household debt to GDP.
- The higher this ratio, the greater the debt burden compared to economic size.
- Korea's total debt ratio is 248%, exceeding the G20 average of 240%.
- When debt grows faster than GDP, the economic structure weakens and crisis response capability decreases.
📕 Deficit Debt
Deficit debt is debt issued by the government to cover fiscal deficits when spending exceeds revenue.
- Since there's no set source for repayment, it must ultimately be repaid with citizen taxes.
- Korea's deficit debt increased by nearly 400 trillion won in 5 years.
- Increasing deficit debt increases the fiscal burden on future generations.
📕 Marginal Companies
Marginal companies are companies that cannot cover their interest costs with operating profits for three consecutive years.
- They have low debt repayment ability and high risk of insolvency during economic crises.
- The proportion of marginal companies among Korean listed companies has exceeded 20%.
- When marginal companies increase, investment and employment shrink and financial system risks grow.
📕 Debt Efficiency
Debt efficiency shows how productively borrowed money is used to contribute to economic growth.
- If GDP increases as much as debt increases, efficiency can be considered high.
- Korea's efficiency is declining as GDP growth rate is low compared to debt growth rate.
- Low debt efficiency can lead to a 'paying debt with debt structure.'
3️⃣ Principles and Economic Outlook
✅ Imbalance Between Debt Growth and Economic Growth
A bigger problem than rapid debt growth is that economic growth isn't keeping up.
First, debt growth rate is outpacing GDP growth rate. From 2019 to 2024, total debt increased by 40%, but nominal GDP only increased by about 25% during the same period. This means borrowed money is not being used in productive places. For example, if a company borrows 10 billion won and uses it to build a new factory or develop technology, creating 20 billion won in value, that's good debt. But if they borrow 10 billion won and only create 5 billion won in value, that's bad debt. The Korean economy is now closer to the latter situation.
Second, side effects of the low-interest era have accumulated. After the COVID-19 pandemic, central banks around the world lowered interest rates to historically low levels, making it very easy to borrow money. The government, companies, and individuals all increased loans thinking "we should borrow when interest rates are low." But starting in 2022, interest rates rose sharply to combat inflation. Loans that only required 2% annual interest now require 5-6% interest. Even for the same amount of debt, the interest burden has increased 2-3 times.
Third, debt increase without productivity improvement is unsustainable. This is connected to the productivity slowdown problem we discussed earlier. When the same amount of money invested doesn't produce the same results as before, debt increases but income doesn't - creating this structure. For an individual, it's like having the same salary but increasing living costs, creating a monthly deficit. If this situation continues, it eventually leads to bankruptcy.
Imbalance between debt and growth weakens economic structure and reduces crisis response capability.
✅ Distinguishing 'Good Debt' and 'Bad Debt'
Not all debt is bad, but Korea is seeing an increasing proportion of bad debt.
First, debt for investment purposes is different from debt for consumption purposes. Money companies borrow for new technology development or facility investment is 'good debt' because it can create future revenue. Money the government borrows to invest in infrastructure like roads and railways is similar. On the other hand, money borrowed to cover daily operating costs or to pay interest on previous debt is 'bad debt.' In Korea's case, the surge in deficit debt signals an increasing proportion of bad debt.
Second, the increase in marginal companies shows inefficiency in resource allocation. The fact that over 20% of companies cannot even pay interest properly means that many of the economy's resources are tied up in unproductive places. These companies are also called 'zombie companies.' They're alive but essentially dead. The funds, personnel, and market share tied up in these companies cannot be used by new and innovative companies. One reason Japan fell into a long recession was that it failed to restructure these zombie companies.
Third, the quality of household debt is also worsening. Loans for home purchases are relatively safe because there are assets backing them. But increasing credit loans or overdraft usage for living expenses is a warning sign. Especially, multiple debtors - people who borrow from multiple places - are increasing. They end up 'juggling debt,' borrowing from one place to repay another, and eventually go bankrupt. When personal bankruptcies increase, it leads to bank insolvency, which threatens the entire financial system.
Increasing good debt and reducing bad debt is key to improving debt structure.
✅ Risk of Private Debt Becoming Public Debt
The most concerning point is that private and corporate insolvency can eventually be converted into government debt.
First, we must remember the lesson from the 1997 financial crisis. At that time, Korea faced a crisis due to excessive corporate borrowing and poor management. As large companies like Daewoo and Hanbo collapsed, banks also became insolvent, and eventually the government had to inject 160 trillion won in public funds. Private debt was converted into public debt that had to be repaid with citizen taxes. A similar situation could repeat now. If marginal companies become insolvent, banks' non-performing loans will increase, and the government may need to inject public funds for financial stability.
Second, household debt insolvency also leads to public burden. When individuals can't repay debt, banks initially bear the losses. But when these losses grow, the banks themselves become insolvent. Historically, when banking crises occur, governments have had to intervene to protect depositors and maintain the financial system. The 2008 U.S. financial crisis also started with mortgage loan defaults, and the government had to inject hundreds of trillions of won. With Korea's household debt size continuing to grow, if shocks like sharp interest rate increases or real estate price collapses occur, large-scale insolvency could happen.
Third, local government and public corporation debt are also hidden risk factors. Looking at central government debt alone, the situation seems somewhat manageable, but when you add hidden debt from local governments and public corporations, it's much more serious. Local governments are issuing more bonds as finances become difficult, and public corporations like Korea Electric Power Corporation and Korea Gas Corporation are recording massive losses. Since the government ultimately guarantees their debt, the central government must take it on during a crisis.
When private debt becomes public, the fiscal burden surges and places a heavy burden on future generations.
4️⃣ In Conclusion
The Korean economy is now falling into a 'debt trap.' All indicators are lighting up warning lights: a total debt ratio of 248% of GDP, the fastest debt growth rate among OECD countries, surging deficit debt, and marginal company ratio exceeding 20%.
The biggest problem is that this debt increase is not leading to growth. Debt has grown rapidly, but economic growth rate is actually slowing down. This means borrowed money is not being used in productive places, and signals that the 'paying debt with debt structure' is becoming fixed.
It's also concerning that Korea is going in reverse while most developed countries are reducing debt after COVID-19. The debt ratio exceeding the G20 average shows how weak Korea's economic structure has become. Japan's 'Lost 30 Years' may not be a distant story.
So what should we do? The answer is clear. First, the government must improve the efficiency of fiscal spending. Reduce indiscriminate spending and focus on future industries with high investment returns. Second, boldly push forward with marginal company restructuring. Although painful in the short term, the economy will revive when resources move to productive places. Third, strengthen household debt management. Build safety nets for vulnerable groups along with total amount regulation.
Individuals also need to respond. Refrain from buying homes or investing with excessive loans, and manage debt within repayment ability. Especially if you have many variable-rate loans, it's important to convert to fixed rates or gradually pay off principal.
Time is not on our side. If debt continues to grow, it could reach an unmanageable level at some point. If we don't reform our economic structure now, even if it's painful, future generations will bear an even greater burden.
Ultimately, we must transition from an 'economy growing with debt' to an 'economy growing with productivity.' This is the only way for the Korean economy to escape the debt trap and achieve sustainable growth.
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