Only 2.5% of North-South Cooperation Fund Loans Repaid Despite Maturity

The prolonged halt in inter-Korean economic cooperation has resulted in only 2.5% of the principal amount due from the North-South Cooperation Fund loans maturing last year being repaid. As the government prepares for the resumption of cooperation, it has significantly increased the loan limit for 2027 to more than three times this year's amount, raising concerns about the fund's financial health.

According to the National Assembly Budget Office on November 9, the principal amount of loans from the North-South Cooperation Fund that matured last year totaled 266.7 billion won. Of this, only 6.7 billion won was actually repaid, representing just 2.5% of the total.

Repayment has been deferred for 89.3% of the maturing amount, which is 238.2 billion won. Additionally, 21.8 billion won is categorized as overdue principal that has not been repaid. The Ministry of Unification has been reviewing applications from companies struggling due to the prolonged suspension of inter-Korean cooperation since 2019, granting one-year deferrals on principal and interest repayments.

As of the end of last year, the outstanding balance of private loans from the North-South Cooperation Fund was 337.2 billion won. This figure includes funds for trade, economic cooperation, loans for the operation of the Kaesong Industrial Complex, and special loans provided after the suspension of Mount Kumgang tourism and the May 24 measures. Despite 633.8 billion won having been disbursed so far, 296.6 billion won has been recovered or written off, leaving over half, or 53.2%, still outstanding.

Despite delays in recovering existing loans, the government has expanded next year's loan limit for economic cooperation from 59.1 billion won this year to 199.4 billion won. This increase of 237.7% is intended to provide funding for large-scale inter-Korean projects, such as the reconnection of railways and roads.

The Ministry of Unification clarified that the allocated 199.4 billion won is not cash set aside but a limit that can be executed if actual projects are agreed upon between the North and South. A ministry official stated, “It is necessary to secure the loan limit in advance to ensure rapid funding can be injected when inter-Korean relations improve and cooperation projects resume.”

Since 2023, there have been no disbursements recorded for the economic cooperation-based loans up to the current analysis period. The mere allocation of the 199.4 billion won loan limit does not immediately increase the financial burden on the fund. Existing loans have been provided to trade and economic cooperation companies and businesses in the Kaesong Industrial Complex, while the economic cooperation-based loans are intended for infrastructure projects such as railways and roads.

However, since both projects are managed under the North-South Cooperation Fund, there are calls to clarify the repayment entities and recovery management criteria before any new loans are actually disbursed. The North-South Cooperation Fund is financed through government contributions and borrowings from public fund management funds. Notably, even if the recovery of corporate loans is delayed, the fund still bears the obligation to repay principal and interest to the public fund. Prolonged delays in recovery could burden the overall financial management of the fund.

This year, the Budget Office also analyzed that “to enhance the fund's financial health, proactive post-management and risk management through regular corporate assessments are necessary to make multifaceted recovery efforts for non-performing loans.” It specifically pointed out the need for appropriate write-offs for non-recoverable bad debts.