The combined debt of the government and households in South Korea exceeded 3,000 trillion won ($2.26 trillion) for the first time in the second quarter of this year. This surge is driven by increased government bond issuance in response to a sluggish economy and significant tax revenue shortfalls caused by tax cuts. A sharp rise in household debt, fueled by aggressive real estate investment, also contributed to soaring debt levels.
Korea’s combined national debt (excluding local government debt) and household debt reached a record 3,042 trillion won as of the end of the second quarter, according to the Finance Ministry and the Bank of Korea on August 25. This represents an increase of 44 trillion won compared to the previous quarter, more than double the 20 trillion won rise recorded in the first quarter.
Most of the country’s national debt, which stood at 1,146 trillion won, was caused by government bonds. This figure rose by 30.4 trillion won in the second quarter due to extensive fiscal spending in the first half of the year amid ongoing tax revenue shortfalls and a sluggish economy. Household debt surged to a record high of 1,896 trillion won as the housing transactions recovered this year.
The sharp rise in household debt is dampening consumption as borrowers struggle with the burden of principal and interest repayments. The retail sales index, which measures consumption, stood at 102 in the second quarter, down from a year earlier, according to Statistics Korea. This marks the ninth consecutive quarter of year-on-year declines in consumption since the second quarter of 2022, making it the longest period of contraction in consumption since records began in 1995.
