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Government Misses Defense Payments Despite Massive Borrowing from Bank of Korea

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Government Misses Defense Payments Despite Massive Borrowing from Bank of Korea

The government’s failure to pay some defense costs on time last year has come under scrutiny as it was revealed that the government borrowed 5 trillion won (approximately $3.47 billion) from the Bank of Korea, exposing loopholes in fiscal management.

According to materials submitted by the Bank of Korea to Rep. Park Sung-hoon of the People Power Party on the National Assembly’s Strategy and Finance Committee on Jan. 7, the government temporarily borrowed 5 trillion won from the central bank in December last year. This was an additional borrowing three months after borrowing 14 trillion won in September last year.

The government utilizes a system where it borrows short-term funds from the Bank of Korea and repays them when temporary funding shortages occur due to timing differences between revenue and expenditure. The frequent use of this system is interpreted as meaning there are many cases where temporary funding is procured due to insufficient revenue compared to expenditure. In particular, the borrowing scale tends to expand as the mismatch between fiscal execution and tax revenue inflow increases.

In fact, the government borrowed a cumulative 164 trillion 500 billion won from the central bank throughout last year. This is the second-largest amount in history, following 2024 (173 trillion won). Following the borrowing of 88 trillion 600 billion won in the first half when political turmoil was significant due to martial law and impeachment situations, another 75 trillion 900 billion won was borrowed in the second half after the presidential election.

The accompanying interest burden was also substantial. The government paid a total of 158 billion 90 million won in interest to the central bank: 44 billion 530 million won in the first quarter, 28 billion 710 million won in the second quarter, 69 billion 110 million won in the third quarter, and 15 billion 750 million won in the fourth quarter. Last year’s annual cumulative interest amount was also the second-highest following 2024 (209 billion 280 million won).

The problem is that despite borrowing 5 trillion won in ‘emergency funds’ in December last year, the government failed to execute some key budgets on time. Rep. Park pointed to this as “a case showing loopholes in managing the national treasury.”

In fact, the Ministry of National Defense reportedly has not yet paid approximately 1 trillion 300 billion won in defense costs that should have been paid to each military service and defense industry companies by the end of last year.

The Ministry of National Defense stated in a regular briefing on Jan. 5 regarding the scale of unpaid defense costs for 2025: “It is difficult to calculate precisely as real-time payment requirements and unpaid requirements are mixed, but we currently understand it to be approximately 1 trillion 300 billion won.” The Ministry of National Defense revealed that budget requests to fiscal authorities were made normally, and they would swiftly execute unpaid requirements through consultation.

Earlier, some media reported that unpaid defense costs reached 1 trillion 800 billion won as of December 31 last year, stating that various units of the Army, Navy, Air Force, and Marine Corps could not receive operational funds, causing disruptions in purchasing goods and paying outsourcing costs. It was also mentioned that defense capability improvement costs executed by the Defense Acquisition Program Administration were delayed from year-end, causing some defense companies to be unable to pay material costs or employee bonuses.

Accordingly, controversy is spreading throughout defense sites and the political sphere. While the government maintains this is routine ‘carryover execution,’ the opposition is strongly opposing it as an “unprecedented defense cost non-payment situation.”

The People Power Party demanded accountability from relevant ministry heads, calling it “truly an incompetent government.” Floor Leader Song Eon-seok criticized: “In this cold winter, the fact that soldiers defending the country and security-related budgets were not paid on time is an unprecedented situation,” and “the fact that 1 trillion 300 billion won was not allocated to the Ministry of National Defense is something that could never happen based on experience.” The People Power Party also claimed that organizational discipline has become lax since the separation of the Ministry of Finance and Economy and the Ministry of Planning and Budget.

The controversy has extended to military welfare issues. It was confirmed that support funds for the ‘Soldiers’ Future Preparation Savings’ that should have been paid to 15 thousand discharged soldiers were paid a week later than scheduled due to the unpaid defense costs. The Ministry of National Defense explained that while there were no problems with monthly salary payments to soldiers, disruptions occurred in some categories such as operational costs and defense capability improvement costs.

While the Ministry of National Defense and fiscal authorities plan to execute all unpaid defense costs within this month through consultation, responsibility disputes and demands for institutional improvements regarding defense budget execution are expected to continue for some time.

Rep. Park criticized: “The Lee Jae-myung government’s failure to pay even the most urgent defense costs on time while recklessly using temporary borrowings from the Bank of Korea is a serious fiscal management failure,” and “a regime that strongly criticized central bank borrowing during its opposition days relying on borrowing after taking power is typical hypocritical fiscal management.”

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