View of the Bank of Korea in Jung-gu, Seoul [Photo: Yonhap News]
In the first year of Lee Jae-myung's administration, the Bank of Korea's temporary loans exceeded 120 trillion won, marking the highest amount recorded by any government in South Korea. Despite expectations of improved tax revenue from a semiconductor supercycle, the government has repeatedly relied on these loans, raising concerns about fiscal management.
According to a report by Ajou Economic Daily, from June of last year to May of this year, the government borrowed a total of 122 trillion won from the Bank of Korea, with 58 borrowing instances during this period. This is the largest borrowing amount recorded in the first year of any government since statistics began in 2011.
The Bank of Korea's temporary loan system is designed to fill short-term funding gaps caused by timing differences between government revenue and expenditure. The government borrows funds from the Bank of Korea as needed and repays them, effectively functioning as a financial negative balance.
Since the beginning of its term, the government has heavily relied on these temporary loans. Starting with 17.9 trillion won in June last year, it borrowed 25.3 trillion won in July and 31.6 trillion won in August. Additional borrowings included 14 trillion won in September and 5 trillion won in December, with 17 trillion won and 11.2 trillion won borrowed in March and April of this year, respectively. No additional borrowing occurred in May.
This trend is particularly notable compared to previous administrations. The Yoon Suk-yeol administration, which recorded the highest borrowing before this, borrowed a total of 87.9 trillion won from May 2022 to April 2023, with 41 instances of borrowing. The Park Geun-hye administration borrowed 86.8 trillion won in its first year, with 32 instances, while the Moon Jae-in administration borrowed only 1.5 trillion won in three instances during the same period.
Currently, the government has no outstanding balance, but the interest burden has approached 100 billion won. Since July of last year, the cumulative interest paid by the government to the Bank of Korea has reached 96.85 billion won.
This year, despite expectations of significant excess tax revenue due to a booming semiconductor market, the continued borrowing from the Bank of Korea has drawn attention to the government's fiscal management capabilities.
Kim Jeong-sik, an emeritus professor of economics at Yonsei University, stated, "The government is utilizing the Bank of Korea's temporary loans because issuing government bonds could raise market and bond interest rates. The need for economic stimulus at the beginning of the administration likely influenced this decision."
He added, "The Lee Jae-myung administration believes that expanding fiscal spending can revive the economy and ultimately increase tax revenue. If tax revenue increases in the future, the borrowing from the Bank of Korea could grow larger under the assumption that it can be repaid."
It is also noteworthy that the Bank of Korea's temporary loans do not directly reflect in national debt statistics. Generally, when the government issues bonds to raise funds, national debt increases; however, temporary loans from the Bank of Korea are not included in national debt statistics. This raises concerns that relying on these loans instead of issuing bonds makes it difficult to fully assess the government's funding situation based solely on national debt indicators.
Professor Kim warned, "If fiscal spending increases rapidly, it could expand market liquidity and lead to inflationary pressures, so caution is needed in fiscal management."
* This article has been translated by AI.
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