Among government debt, the debt that must be repaid with taxes paid by the public (deficit-financed debt) is steadily growing. Deficit-financed debt is government debt minus financial debt that can be repaid by recovering government-issued loans or foreign currency assets. In just the past year, deficit-financed debt increased by 110 trillion won to a total of 926 trillion won. That is 71% of total government debt. As the share of deficit-financed debt grows, some note the quality of the nation's debt is deteriorating.
◇ Share of "debt to be repaid with taxes" 69.4→71→72.6%
According to the National Assembly Budget Office's "2025 fiscal year settlement of account analysis," as of the end of last year, deficit-financed debt stood at 925.7 trillion won out of 1,304.5 trillion won in government debt. That was up 110.5 trillion won from a year earlier. Of last year's total increase in government debt of 129.4 trillion won, 85.4% was the rise in deficit-financed debt.
The share of deficit-financed debt within government debt rose 1.6 percentage points, from 69.4% in 2024 to 71% last year. Based on this year's first supplementary budget, deficit-financed debt is projected at 1,025.2 trillion won, with the share climbing to 72.6%. Of the 108.3 trillion won increase in government debt expected this year, 99.4 trillion won, or 91.9%, is the increase in deficit-financed debt. From 2021 to 2025, the average annual growth rate of deficit-financed debt was 11.6%, 31 times the 0.4% growth rate of financial debt.
Most deficit-financed debt was "general account deficit-offsetting debt," built up by issuing Government Bonds because expenditures could not be covered by revenue. This debt rose by 113.7 trillion won last year to 870.4 trillion won. In other words, 87.9% of last year's increase in government debt was incurred while covering the general account deficit. The consolidated fiscal balance without social security fund posted deficits exceeding 100 trillion won for two straight years in 2024 and 2025, and two supplementary budgets last year also increased Government Bond issuance. Unless fiscal surpluses, additional revenue, or surplus funds are used for principal repayment, existing debt is rolled over through refinancing and new deficits are added.
◇ Even "debt with corresponding assets" looks worse when broken down by fund
Even financial debt, typically classified as "less bad debt" because it has corresponding assets, had weak spots. As of 2024, financial debt was 359.8 trillion won and corresponding assets were 465.9 trillion won, leaving assets larger by 106.1 trillion won in the aggregate. That was thanks to large excess assets at the foreign exchange equalization fund and the housing & urban fund.
However, the picture changed when broken down by account and fund. Of the 27 accounts and funds holding financial debt, 13 had fewer own corresponding assets than debt. The shortfall totaled 32 trillion won. The Employment Insurance Fund had the largest shortfall at 7.5 trillion won, followed by the Small Enterprise and Market Service Fund at 6.6 trillion won and the National Health Promotion Fund at 4.9 trillion won.
If these cannot be repaid with their own assets later, they will have to rely on premiums, general finances, or additional borrowing. The budget office said, "Aggregate totals can mask the repayment vulnerabilities of individual funds," and recommended, "Review whether the shortfall should be reclassified as deficit-financed debt."
◇ Budget office: "Set management targets for deficit-financed debt and spend more on repayment"
The budget office noted that while the government manages the total amount of government debt and the ratio to gross domestic product (GDP), it has not set separate targets for the size and share of deficit-financed debt. It also urged using more surplus funds for debt repayment. Under current law, at least 51% of year-end surplus funds remaining after settling grants-in-aid (non-earmarked tax) must be used for contributions to the Public Fund Repayment Fund and for repaying Government Bonds and borrowing fund. The budget office said the government has repaid only this minimum ratio each year and, in years with remaining resources, used most of them as supplementary budget funding, and said the government should consider raising the mandatory repayment ratio.