Korea’s short-term external debt ratio to foreign reserves hits 2-yr high in Q3

2017.11.23 15:12:07 | 2017.11.23 15:12:48

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The share of South Korea’s short-term external debt against its foreign reserves reached the highest level in two years as of the end of September, stoking worries of increased vulnerability to external risks.

According to data released by the Bank of Korea (BOK) on Thursday, the ratio of the country’s short-term foreign debt to foreign reserves stood at 31.1 percent, up 0.3 percentage point from the previous data released at the end of June. The share was the highest since the end-September in 2015 when it reached 31.3 percent.

The share of short-term external liability against total liability amounted to 29.3 percent, also the highest since the end-June in 2014. The gain was fueled by the rising short-term foreign debt due by a year or less that added $2.5 billion from three months earlier to $119.8 billion.

The central bank said that expectations on an interest rate hike have been pushing up the short-term foreign liability. The high level of short-term debt could leave the country vulnerable to external volatility.

The short-term debt share soared to 657.9 percent during the Asian financial crisis in 1997 and was on the steady decline during the 2000s. It again surged to above 70 percent during the global financial crisis in 2008 and dropped back to hover at 20 percent to 30 percent level over the past few years.

Meanwhile, the nation’s net external debt, an indicator of a country’s solvency, totaled $447.4 billion as of the end-September, up $24.3 billion from the end-June.

An official from the Ministry of Strategy and Finance said that despite the rising short-term debt, other indicators for external debt soundness and solvency remain stable. “The government will closely monitor the external debt situation to maintain stable external soundness amid lingering uncertainties in global financial markets, such as monetary policy normalization in advanced economies and North Korea related geopolitical risks,” the ministry said in a press release.

By Yoon Won-sup and Choi Mira

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