Total S. Korean public sector debt higher than US$770 billion, 65% of GDP

Posted on : 2014-02-15 13:07 KST Modified on : 2014-02-15 13:07 KST
New IMF metric calculates debt in consideration of government and public institution liabilities

By Kwon Eun-jung, staff reporter

South Korean public sector debt, an index that includes both government liabilities and those of public enterprises and institutions, amounts to over US$770 billion, government data show.

According to calculations released on Feb. 14 by the Ministry of Strategy and Finance, the country’s public debt stood at 821.1 trillion won (US$771.8 billion) as of late 2012, up 67.8 trillion won (US$63.7 billion) from 2011.

This marks the first time figures have been released for public debt, which is calculated by adding the liabilities of non-profit public institutions and non-financial public enterprises to the national debt - 443.1 trillion won (US$416.5 billion) in South Korea’s case - and subtracting internal transactions by the central and local governments and public institutions.

The government’s decision to release figures combining national debt with public enterprise liabilities comes after the adoption of accrual accounting, a new global guideline for public sector debt statistics (PSDS). The guideline was developed by the International Monetary Fund (IMF) and others to reflect all of the different financial concerns that came up around the world in the wake of the 2008 global financial crisis by reflecting possible future liabilities - much like a corporate financial statement.

Past calculations of national debt in the commonly understood sense followed a cash-basis accounting approach that only recorded cash flows in and out. Totals included only central and local government accounts and funds for cash receipt and disbursement; future financial burdens like national pension payments and public enterprise liabilities were not included.

The new guideline recommends combining this general government debt with all public institution debt effectively underwritten by the central government under a single unit. This means including any credit transactions that the government would have to pay at some point.

Accrual accounting indicators come in two types: general government debt and public sector debt, depending on the scope of credit transactions.

General government debt is the sum of national debt combined with the liabilities of non-profit public institutions underwritten by the central government, local government non-profit institutions, and local education authorities. In South Korea’s case, the 165 central government public institutions include the National Pension Service and Government Employees’ Pension Service, while the 87 local government institutions include the Seoul Metro and Metropolitan Express Transit Corporations in Daegu, Gwangju, and Daejeon, along with various regional Facilities Management Corporations.

General government debt is used to compare the financial soundness of different countries. For South Korea, the 504.6 trillion won (US$474.3 billion) total as of late 2012 amounted to 39.7% of gross domestic product (GDP) - a significantly healthier percentage than Japan (219.1%), the US (106.3%), the United Kingdom (103.9%), Germany (89.2%), and the OECD average (107.4%).

Calculating public sector debt involves adding in non-financial public enterprise liabilities as well. These are included because of their risk of “metastasizing” into a future financial burden. In South Korea’s case, the public sector debt total of 821.1 trillion won - combining general government debt with 389.2 trillion won (US$365.8 billion) in public enterprise debt and subtracting 72.8 trillion won (US$68.4 billion) in internal transactions - amounts to 64.5% of GDP.

Comparison of this rate with other countries is not possible because no other countries have yet used the standard to calculate debt, the Ministry of Strategy and Finance said.

Not included in the public sector statistics were the liabilities of financial public enterprises like the Bank of Korea, Korea Exim Bank, and Korea Development Bank, or the 105.8 trillion won (US$99.5 billion) in national and public bonds owned by major pension funds.

“The global norm is not to include financial public enterprises in public sector debt because deposits are fixed as liabilities,” explained Kim Sang-gyu, deputy minister of fiscal affairs at the Ministry of Strategy and Finance.

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