South Korea should be protecting itself from a debt explosion due to its aging population according to the IMF.
While the country is currently able to keep up with the rise in debt caused by COVID-19, the outlook for the debt level is a jump from 53.2 percent of the GDP this year to 69.7 percent in 2026 according to data from the IMF Fiscal Monitor earlier this month.
Countries in Europe, as well as Japan, have been seeing their debt percentages coming down although their levels stand much higher.
In an interview with Bloomberg on Tuesday, Andreas Bauer, Korea mission chief for the IMF said the country's strong fundamentals, including its manufacturing sector and a quality labor force, will allow the debt to be managed for the time being.
However, he added, "you should put fiscal policy into a longer term framework that will make sure the debt will not explode later on when additional liabilities from population aging will arise."
The number of deaths surpassed the number of births in South Korea in 2020 for the first time in recent history and the country is on route to having 40 percent of its population aged 65 or older by 2050 that is the highest ratio in the world according to the UN.
The government is aware of the situation and plans to set the debt ceiling at 60 percent of GDP by 2025.
Despite the country's aggressive economic measures helping the country's economy to slowly bounce back Bauer believes there are structural reforms needed to improve the labor market as aging becomes a factor such as stimulating innovation in an economy dominated by large firms among others.
Kim Do-yeon, Arirang News.