Rising Public Debts and Squeezed Budgets Across Asia
Public debt and financial pressures are mounting across Asian economies as governments grapple with escalating expenses for aging populations, military modernization, and infrastructure. IntelliNews reported that while the region is not facing a single pan-Asian debt crisis due to diverse national balance sheets, a broad fiscal squeeze is forcing capitals to confront difficult questions regarding taxation and spending.
The International Monetary Fund’s regional outlook highlights that public debt levels have remained elevated across much of Asia since the COVID-19 pandemic. According to a policy brief from the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), the developing Asia-Pacific region is aging rapidly, leaving public finances with limited time to adjust.
Japan Faces Ending Era of Near-Zero Interest Rates
Japan illustrates the long-term fiscal trajectory of a super-aging society, with the Ministry of Internal Affairs and Communications reporting that 29.6% of the population, or approximately 36.24 million people, are now aged 65 or older. The National Institute of Population and Social Security Research projects this share will reach 36.3% by 2045.
Tokyo has historically funded its welfare obligations through near-zero interest rates, but that monetary era is shifting. The coupon on new 10-year government bonds rose to 2.4% in April, and the benchmark yield briefly touched 3% on September 1, reaching levels last observed in October 1996. The yield movement followed record budget requests totaling JPY 143 trillion ($912bn) submitted by ministries for the upcoming fiscal year. Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, stated that market attention has shifted toward how budget sizes are determined, what revenue sources are deployed, and how spending controls will maintain fiscal discipline.
South Korea Increases Spending on AI and Childcare
South Korea is addressing demographic decline through aggressive fiscal expansion. Seoul’s draft 2027 budget reaches KRW 821 trillion ($620.3bn), marking a 12.8% annual increase directed primarily toward artificial intelligence, childcare, and regional development.
National debt in South Korea is projected to climb from KRW 1.414 quadrillion to KRW 1.520 quadrillion. Economic planners anticipate that stronger economic growth will lower the national debt ratio to 48.3% of gross domestic product from 51.6%. The fiscal strategy depends on a projected 30.4% surge in tax revenues, largely derived from semiconductor taxes, exposing the budget to potential volatility in global technology markets.
Taiwan and Southeast Asian Nations Manage Security and Currency Strains
Security expenditures are adding new claims to regional treasuries. Taiwan’s Cabinet has requested a supplementary budget of TWD 606bn ($19.12bn) dedicated to drone and missile defense systems. This request follows a decision by the opposition-controlled legislature in May to cut TWD 470bn from a broader TWD 1.25 trillion special defense package.
In Southeast Asia, lower incomes and currency depreciations amplify debt servicing costs. The Philippines recorded an outstanding national debt of PHP 18.49 trillion ($304.73bn) at the end of March. The peso’s decline against the dollar between February and March added PHP 299.5bn to the value of foreign obligations. The Development Budget Coordination Committee reported that Congress has approved roughly a quarter of requested counterpart funds for loan-backed infrastructure since 2022, while commitment fees paid to foreign lenders increased to $16.8 million in 2024 compared to $584,000 in 2017.
Indonesia maintains a debt-to-GDP ratio of 41.26%, with total borrowing reaching IDR 10.3 quadrillion ($569bn) at the end of June. President Prabowo Subianto directed the Danantara sovereign fund to return a portion of state-enterprise dividends to the national treasury. Finance Minister Suahasil Nazara committed to maintaining the fiscal deficit within the statutory 3% ceiling.
Sri Lanka exhibits severe fiscal constraints following sovereign restructuring. Fitch Ratings projects a primary surplus of 2.6% of GDP and an overall deficit of 4.1% for the year, indicating interest costs equivalent to roughly 6.7% of economic output against revenues of just under 16%.
Why Public Debt Remains High Across Asia?
Why is public debt remaining high across Asia after the pandemic?
According to IMF regional reports and UN assessments, persistent high debt stems from a combination of post-pandemic borrowing needs, rapidly aging populations requiring greater welfare and healthcare spending, and rising military budgets.
How high did Japanese bond yields rise?
The benchmark 10-year Japanese government bond yield briefly touched 3% on September 1, a level not recorded since October 1996, following record budget requests of JPY 143 trillion.
What is driving South Korea’s budget increase for 2027?
Seoul’s draft 2027 budget rises by 12.8% to KRW 821 trillion, with the majority of the funding allocated to artificial intelligence, childcare programs, and regional development initiatives.
How much did commitment fees to foreign lenders increase in the Philippines?
Commitment fees paid to foreign lenders rose to $16.8 million in 2024, up significantly from $584,000 in 2017, as capital budgets faced delays and cuts.
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