South Korea’s external debt hits record high in Q2 amid market intensification and economic uncertainty
SEOUL, Aug. 18 (Yonhap) — South Korea’s external debt hit a record high in the second quarter of this year, driven by an increase in short-term liabilities amid rising market volatility. financial and economic uncertainty, according to central bank data Thursday.
The country’s external liabilities stood at $662 billion at the end of June, up $7.9 billion from three months earlier, according to preliminary data from the Bank of Korea (BOK).
The amount was the largest on record since relevant data began to be compiled in late 1994.
The rise was attributed to the government offloading dollars to defend the local currency and a decline in the converted value of non-dollar assets amid greenback strength.
The BOK also cited high commodity prices which have increased import spending and strong demand for dollars from local companies seeking overseas investment.
In particular, the country’s short-term debt maturing in a year rose $8.9 billion quarter-on-quarter to $183.8 billion at the end of June, the data showed.
The ratio of short-term debt to foreign exchange reserves rose to 41.9% at the end of June, up 3.7 percentage points from three months earlier.
It also marked the highest since the second quarter of 2012, when the corresponding figure jumped to 45.6%. A higher ratio means a lower debt service capacity.
The ratio of short-term debt to total external liabilities also rose 1 percentage point quarter-on-quarter to 27.8 percent, the data showed.
A BOK official said that despite the increase in the debt ratio, the country’s repayment capacity remains in good condition and dismissed concerns that the country’s sovereign credit ratings could be downgraded.
The official added that the ratio is unlikely to exceed 50% this year, citing the fact that foreign exchange reserves have stopped declining since July.
South Korea’s foreign exchange reserves stood at $438.61 billion at the end of July, up $330 million from the previous month. It was the first increase after five consecutive months of contraction.