South Korea's national debt ratio relative to gross domestic product (GDP) is rising rapidly.

With war in the Middle East casting a shadow over the global economy, the national debt ratio is expected to rise faster if fiscal burdens increase or if GDP, the denominator, does not grow as much as expected.

According to the 2025 fiscal year national settlement report released on Sunday, national debt (D1) last year stood at a provisional 1,304.5 trillion won, up 129.4 trillion won from the previous year's settlement.

Data from the National Statistical Portal (KOSIS) show the rise in national debt last year was the biggest since 1997, when official tallies based on the current standards began to be published.

Since annual national debt has never fallen, the total has hit a new high each year. It has risen by more than 100 trillion won in a single year only three times through last year, including 2020 (up 123.4 trillion won) and 2021 (up 124.1 trillion won). The national debt growth rate last year was about 11 percent, the biggest in 4 years since it posted 14.7 percent in 2021.

National debt is confirmed debt for which the government has a direct repayment obligation. It is the sum of central government debt and local governments' net debt. Final figures come after local government settlements are completed, after August.

As national debt grew by the largest amount, the ratio to GDP, the national debt ratio, also surged.

The national debt ratio rose to 49.0 percent in 2025 from 46.0 percent in 2024, up 3.0 percentage points.

It marked the biggest jump in 5 years since it rose 5.7 percentage points in 2020, when the overall economy was hit hard by the COVID-19 pandemic.

The national debt ratio rose by 2.6 percentage points in 2021, 2.2 percentage points in 2022 and 0.9 percentage points in 2023, gradually narrowing its increases. It then fell 0.8 percentage points in 2024 before rebounding sharply last year.

Going forward, annual increases of more than 100 trillion won in national debt could become the new normal.

In documents including the "2025 to 2029 National Fiscal Management Plan" submitted to the National Assembly in September last year, the government projected national debt will rise to 1,415.2 trillion won in 2026, 1,532.5 trillion won in 2027, 1,664.3 trillion won in 2028 and 1,788.9 trillion won in 2029. Under that projection, it would increase by an average of about 121 trillion won a year from this year through 2029.

It projected the national debt ratio will expand to 51.6 percent in 2026, 53.8 percent in 2027, 56.2 percent in 2028 and 58.0 percent in 2029.

The problem is that the original projections do not hold up well. A clear example is that it initially expected the 2028 national debt ratio to be around 50.5 percent in 2024, then raised it by 5.7 percentage points to 56.2 percent last year. It could worsen further.

If GDP growth slows this year or fiscal burdens increase, the pace of the rise in the national debt ratio could accelerate.

Major institutions are revising down their economic forecasts, citing factors including the impact of war in the Middle East. The Organisation for Economic Co-operation and Development (OECD) recently lowered its projection for South Korea's growth this year by 0.4 percentage points from its estimate released in December, saying it will be around 1.7 percent.

In a report, the OECD cited South Korea's and Japan's heavy dependence on energy imports from the Middle East. It projected that energy supply shortages due to the war in the Middle East will weigh on production activity.

The Bank of Korea's Monetary Policy Board said in the policy statement adopted at its monetary policy meeting on April 10 that this year's growth rate is expected to fall short of its February projection of 2.0 percent, as the growth trend slows more than initially expected due to the impact of rising energy prices and supply disruptions.

(Yonhap)