Bank of Korea Gov. Rhee Chang-yong / Yonhap
The government has borrowed over 152 trillion ($130 billion) won from the Bank of Korea (BOK) as of end-September, in what an opposition lawmaker has characterized as a practice falling behind global standards, Tuesday.
However, BOK Gov. Rhee Chang-yong maintains that the decades-long, often-attacked practice of short-term borrowing reduces government financial costs, thereby enabling healthy liquidity flow for fiscal planning.
Often termed a “BOK overdraft,” the practice grants the government short-term loans to navigate budget shortages caused by mismatches between revenue and spending.
At issue is whether the government should resort to monetary stabilization bonds or treasury bills.
The former are short-duration, BOK-issued securities that help control the money supply, while the latter, with a minimum maturity of 63 days, are for revenue generation for the central government and municipalities.
The stabilization securities are an easier and faster option for the government since the longer-duration, higher-risk treasury bills charge higher interest rates.
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Rep. Lim Kwang-hyun of the main opposition Democratic Party of Korea
According to data submitted to Rep. Lim Kwang-hyun of the main opposition Democratic Party of Korea, the government's borrowing from the central bank stood at 152.6 trillion won as of September. Of the total, 142.1 trillion won has been repaid.
The September figure already exceeded last year's record of 117.6 trillion won.
In 2020, the government borrowed 102 trillion won over 51 occasions at the height of the COVID-19 pandemic to draft disaster relief packages.
Last year, 117.6 trillion won was borrowed over 64 occasions due to a revenue shortfall of over 56 trillion won.
But the former National Tax Service official shared suspicions that the government may have used the borrowed funds to pay salaries for civil servants this year amid an acute tax revenue shortfall.
He said 38 percent of the 68 borrowings were granted only a day or two before the date of their monthly salary payment.
“The government is using the BOK overdrafts too frequently amid a tax shortfall resulting from tax cuts for the rich,” said Lim, a member of the National Assembly Strategy and Finance Committee.
“I doubt whether the Ministry of Economy and Finance has too easy a reach into the central bank's funds.”
He added that major economies do not have similar practices in place.
“Countries in Europe and the United States, for example, do not allow such practice to interfere with the money supply due to inflation concerns. The current system must undergo a revision.”
Meanwhile, Rhee said the fallout of the status quo is negligible as long as the average balance of the government's short-term borrowings undershoots that of the treasury bills issued.