Gov’t debt tops W1.1 quadrillion

The government’s debt, including liabilities of state pension funds, rose sharply last year to 1.117 quadrillion won, according to the government’s settlement report for last year’s budget, released Tuesday.

This is up some 215 trillion won from the previous year’s 902 trillion won, and represents 78.2 percent of the country’s gross domestic product (GDP).

The rapid debt growth is mainly attributed to the changed accounting standards in calculating potential pension liabilities. The Ministry of Strategy and Finance said it used the “accrual method” instead of the “cash method” to calculate the debt.

Under the accrual accounting system, income and expenses are counted based on contracts, while under the cash basis system, income and expenses are counted only after they are actually paid.

After adopting the new calculation method, liabilities of pension funds for public servants and soldiers increased by 159.4 trillion won to 596.3 trillion won, and government-guaranteed savings and bonds rose by 55.8 trillion won to 521 trillion won.

The amount of these debts is subject to change depending on the rates of inflation and income growth in the future.

“We changed the accounting system to provide a more accurate picture of the state of the government’s debt,” said Kim Sang-gyu, a ministry official. “We included potential liabilities of state pension services because their payments are guaranteed by the government. However, the government’s responsibility for these liabilities is limited.”

Excluding pension liabilities, the debt held by the central and municipal governments came to 482.6 trillion won, up 8.1 percent from 443.1 trillion won a year earlier. This represents 33.8 percent of the country’s GDP.

“Last year, the government set up an extra budget to support economic recovery, while tax revenue declined. This is the key reason for the debt rise,” said Lee Tae-seong, another ministry official.

Korea’s public sector debt has soared in recent years as state enterprises issued more bonds to finance engineering projects initiated by the government.

The ministry said Korea’s debt level is still lower than other developed countries, but that held by state enterprises is soaring at an alarming rate.

The rapid growth of household debt is also adding to the woes. This jumped to a record high 1.02 quadrillion won as of January, according to the Bank of Korea.

The government’s debt, including liabilities of non-profit public organizations, stood at 504.6 trillion won as of the end of 2012, which represents 36.6 percent of GDP. This is lower than the OECD average of 107.4 percent. The comparable ratios are 102.1 percent in the United States, 218.8 percent in Japan, 88.3 percent in Germany and 48.8 percent in Sweden.

Assets held by the central and regional governments totaled 1.67 quadrillion won last year. The combined value of their net assets came at 549.2 trillion won, down 129 trillion won from the previous year. By Na Jeong-ju The korea times