[Editorial] Swelling National Debt: Fiscal Soundness Must Be Preserved Even With Expansionary Policy

With national debt increasing rapidly and high oil prices piling on, worries about the government’s finances are deepening. According to the government’s "2025 Fiscal Year National Settlement Report," national debt reached 1,304.5 trillion won last year, an increase of 129.4 trillion won from the previous year’s settlement. This jump in national debt is the largest since the 1997 foreign exchange crisis. As a result, the national debt-to-GDP ratio climbed to 49%, up 3 percentage points in a single year.
The national debt-to-GDP ratio indicates a country’s capacity to bear its debt. A sharp rise in this ratio over a short period means that borrowing is growing faster than the income generated by the economy’s main actors. Given that energy supply disruptions from the Middle East conflict are already curbing domestic corporate production, there is a real risk of a vicious cycle of rising national debt, sluggish economic growth, and weakening repayment capacity.
To be sure, in a situation of soaring international oil prices and weak domestic demand, an active fiscal role is unavoidable. With countries around the world expanding fiscal spending to build artificial intelligence (AI) infrastructure, public finances are inevitably being used as a pump-priming tool for growth. Even so, the problem is that the government and political circles have leaned so heavily toward expansionary fiscal policy that considerations of fiscal soundness have been pushed too far into the background.
This year’s budget, already being executed, is the largest ever at 728 trillion won, and on top of that, a large supplementary budget of 26.2 trillion won has passed the National Assembly. If we include tax expenditures such as tax credits and various tax reductions, total government spending this year will exceed 800 trillion won. Overall fiscal outlays are expanding at a rapid pace.
Even with limited fiscal space, the government decided to freeze the third-stage maximum oil price at the same level as the second stage. In principle, the cap should have been raised significantly to reflect changes in international petroleum product prices, but the increase was put on hold on the grounds of easing the burden on people’s livelihoods.
Such artificial price suppression is highly likely to translate into a future fiscal burden, as the government may have to compensate refiners for their losses. This will inevitably further strain public finances. In an energy crisis, price policies that ignore basic principles distort consumption and, in fact, tend to maintain or even increase demand. Fiscal management that relies on short-term fixes can ultimately come back as a heavier burden on ordinary people.
Last year, Korea’s managed fiscal balance recorded a deficit of 104 trillion won, the fourth-largest on record. There is also a strong possibility that fiscal deficits will exceed 100 trillion won for three consecutive years from 2024 through this year. In the past, calls to enshrine fiscal rules in law—such as capping the fiscal deficit at 3% of GDP—gained traction, but those discussions have now effectively fizzled out. The International Monetary Fund (IMF) has likewise advised Korea to secure fiscal sustainability by clarifying revenue-enhancement measures and setting explicit fiscal balance targets in response to mounting spending pressures from population aging and other factors. Yet it is unclear which government officials, if any, are actually moving to implement these recommendations.
Minister of Planning and Budget Park Hong-keun has been stressing "sustainable expansionary fiscal policy" and a "golden balance." His vision is to use fiscal spending to drive growth and then channel the fruits of that growth back into strengthening public finances, creating a virtuous cycle. For this vision to be more than rhetoric, concrete fiscal management standards and a realignment of spending priorities must follow. If the balance between an active fiscal role and fiscal soundness is not institutionally guaranteed, public trust in the nation’s finances will inevitably be shaken.