Escalating national debt approaching 2065 may precipitate Korea into a financial precipice

South Korea is bracing for a significant shift in its fiscal landscape, with major social insurance programs and the basic pension system projected to face financial difficulties in the coming decades.

According to a report submitted by the Finance Ministry, the share of mandatory spending is expected to rise nearly 10 percentage points, from 13.7 percent in 2025 to 23.3 percent in 2065. This increase is primarily due to expansions in social insurance and the basic pension system.

The National Health Insurance in South Korea is projected to fall into deficit by 2026, with reserves exhausted by 2033. The Teachers' Pension and the National Pension Service are also expected to face deficits, with the latter projected to swing into deficit in 2048 and deplete its fund by 2064.

These projections are broadly in line with other state institutions, including the Korea Development Institute, which forecasts a 145 percent increase in the elderly population by 2060, and the National Assembly Budget Office, which projects a 173 percent increase by 2072.

The main threats to fiscal stability, according to the report, are rising mandatory expenditures and slowing growth. The working-age population in South Korea is forecasted to decrease from 35.91 million today to 18.4 million in 2065.

To address these challenges, proposals for structural reforms are being discussed by government bodies, political parties, and labor unions. These reforms aim to rehabilitate the finances of social insurances. For example, the Green Party calls for broader reforms, while labor unions actively participate in negotiations and reform proposals.

The report also suggests that if 5 percent of discretionary spending is cumulatively saved over 20 years and the trend maintained thereafter, the debt ratio in 2065 could fall to 150.3 percent.

Despite these efforts, the debt ratio in South Korea is expected to more than triple over the next 40 years, reaching 156 percent of the country's GDP by 2065. The revenue-to-GDP ratio is expected to peak at 26.5 percent in 2035, up from 24.2 percent today, but then slide to 24.1 percent in 2065.

Total spending in South Korea is projected to climb to more than a third of GDP by 2065, from 26.5 percent now. This increase is a concern for policymakers, who are working to ensure the long-term fiscal sustainability of the country.

The Finance Ministry submitted the Long-term Fiscal Outlook for 2025-2065 to the National Assembly, as required by the National Financial Act. The report serves as a roadmap for policymakers as they navigate the challenges ahead and seek to maintain fiscal stability in South Korea.