Report warns of explosive debt increase, growth freeze

Korea Herald

23-02-2025

Fueled by the world's fastest aging population, South Korea's national debt is projected to surge sixfold to 7,000 trillion won ($4.87 trillion), while the country's productivity is expected to nearly stagnate by 2072.
The National Assembly Budget Office detailed this grim outlook in its "Long-term Fiscal Outlook Report for 2025-2072," highlighting the significant impact of demographic shifts driven by a rapidly aging population and a declining workforce. The forecast is based on the assumption that existing laws and systems will remain unchanged.
According to the report, by 2050, the national debt is expected to reach a level where the country's production will no longer be sufficient to cover it, with the debt-to-GDP ratio projected to surpass 100 percent. Currently at 48 percent, the ratio is forecast to surge to 173 percent by 2072, meaning the country's debt will be 1.73 times its annual economic output.
The country's national debt is expected to increase nearly sixfold by 2072, rising from the current 1,270 trillion won to 7,300 trillion won. In the same period, the gross domestic product growth rate is projected to plummet to 0.3 percent by 2072, down from the anticipated 2.2 percent this year.
The report highlights that increased spending driven by the world's fastest-aging population is a key factor in the explosive growth of national debt.
"The total spending-to-GDP ratio is projected to rise as mandatory expenditures increase due to the growing number of public pension beneficiaries and escalating welfare costs from an aging population," the report stated, noting that this proportion is expected to grow from 25.5 percent in 2025 to 33.6 percent.
This translates to an average annual spending growth rate of 1.6 percent over the next 47 years. In contrast, Korea's national income is anticipated to grow at only half that pace, averaging 0.8 percent per year until 2072.
Last year, Korea became the world's fastest "super-aged society," transitioning from an "aged society" in just seven years, as the proportion of its population aged 65 or older increased from 14 percent to 20 percent.
This proportion of the senior population is expected to rise further, reaching nearly half of the population — 47.7 percent — by 2072. The number of over-65 population is projected to grow from 10.51 million in 2025 to 17.27 million by 2072. In contrast, the economically productive population, aged 15 to 64, is projected to decline from 35.91 million to just 16.58 million during the same period.
Such demographic change is set to undermine the financial stability of the country's social security programs, becoming a major driver of Korea's rising fiscal deficit. The largest of these programs is the National Pension Fund, which is projected to peak in reserves in 2039, before entering negative growth the following year, ultimately being depleted by 2057. Upon depletion, the fund's accumulated fiscal deficit could reach approximately 2,900 trillion won, or 60 percent of GDP, by 2072.
The report underscored that slowing population decline is critical to curbing national debt.
According to the report, the projected national debt-to-GDP ratio of 173 percent by 2072 is based on a "medium" population estimate of 36.22 million. If demographic trends improve and the population declines only to the "high" estimate of 42.82 million, the debt ratio could drop by 9.8 percentage points to 163.2 percent. Conversely, if the population shrinks to the "low" estimate of 30.17 million, the ratio could rise to 181.9 percent.
Hope lies in a potential rebound in the birth rate: "Preliminary data suggests Korea's total fertility rate will rise to 0.75 in 2024, surpassing the government's projection (of 0.68) and marking the first increase in nine years since 2016. ... It is crucial to maintain at least a 'medium' level of population structure to prevent a rise in the national debt."