A total of 241 trillion won ($169 billion) in treasury bonds issued when interest rates stood at 1% to 2% will mature in stages from next year through 2030. Given the recent rise in funding costs, the government's interest burden will grow as it rolls over this debt.
According to data submitted by the Ministry of Finance and Economy to the offices of People Power Party lawmakers Park Soo-young and Bae Joon-young, treasury bonds maturing between 2027 and 2030 total 406.3 trillion won. Of that, 240.7 trillion won — 59.2% of the total — carried winning bid rates below 3% at issuance.
If the 110.7 trillion won in treasury bonds maturing next year alone were refinanced at current winning bid rates with the same maturities, funding costs would rise by about 1.12 trillion won. Additional interest costs of roughly 800 billion to 900 billion won a year would follow in 2028 and 2029, climbing to 1.48 trillion won in 2030. The ministry projects government interest payments on sovereign debt will jump to 40.4 trillion won next year from 29.2 trillion won this year, exceeding 51 trillion won by 2030.
The larger concern is that market rates are likely to climb further from here. That would push the government's interest burden above current projections. Sovereign yields are already surging simultaneously across major economies as the U.S., Japan and others move in earnest toward monetary tightening. The U.S. 10-year Treasury yield, the global benchmark, hit 5.34% early this month, its highest in 24 years, while the U.K. 30-year gilt yield topped 6%.
South Korea's fiscal health is still widely assessed as sound. But if a downturn in the semiconductor cycle triggers another revenue shortfall, the government would have little choice but to issue more deficit-financing bonds, risking a vicious cycle of mounting interest costs. Fiscal deficits, once they begin to swell, tend to snowball. The government should pay down sovereign debt aggressively while revenue conditions are favorable and reduce its interest burden in advance. It should also refrain from populist spending and focus on broadening a stable tax base. With a "new normal" of high interest rates taking hold worldwide, the time has come for preemptive debt management.