Exclusive Gyeonggi Province Debt Interest Rates Rise from 2% to 4%... Repayment Burden Could Grow Larger

Gyeonggi Province's debt interest rates have risen from the 2% range to the 4% range, increasing the burden of interest payments.

According to data submitted to Gyeonggi Province by Kim Han-seul, a Gyeonggi Province council member (People Power Party·Proportional), the province must bear a total principal and interest of 7.04 trillion won by 2038 for repayment of the Regional Development Fund, Integrated Fiscal Stabilization Fund consolidated account, and local government bonds.

Of this, the principal amounts to 6.30 trillion won and interest to 739.2 billion won. Based on the current repayment plan, the province is bearing over 11% of the principal amount as additional interest expenses.

In particular, the procurement rate for local government bonds has risen sharply recently.

Local government bonds worth 209.9 billion won issued by the province in February 2025 carried an annual interest rate of 2.9%. Those worth 273.1 billion won issued in March of the same year also had an annual rate of 2.915%.

However, rates rose to the 3% range starting from late last year. The 460 billion won procured in December 2025 used a variable interest rate method, adding 0.67 percentage points to the three-month negotiable certificate of deposit (CD) rate, with an applied rate of 3.58% at the time.

The upward trend continued this year. Local government bonds worth 298.5 billion won issued in February had a rate of 3.552%, but those worth 197.8 billion won issued in May jumped to 4.265%.

In just over a year, Gyeonggi Province's local government bond procurement rate has risen from the late 2% range to the early 4% range.

Internal borrowing through funds shows a similar pattern. The province borrowed funds from the Regional Development Fund at 1.5% annually during 2020-2021, but some borrowing rates rose to 3% during 2023-2025. As of June this year, the borrowing rate stands at 2.5%.

The Integrated Fiscal Stabilization Fund consolidated account also saw its borrowing rate rise from 1.5% annually in 2021 to the 2.5-3% range since 2023.

External interest rate conditions are also problematic.

The U.S. Federal Reserve held a Federal Open Market Committee (FOMC) meeting on the 16th (local time) and unanimously decided to raise the benchmark interest rate by 0.25 percentage points to 3.75-4.00% annually. The Fed cited high levels of inflation as the background for the rate hike.

U.S. interest rate increases can affect domestic market interest rates through U.S. Treasury yields, dollar values, and flows of foreign capital.

For the province, future market interest rates are crucial. If additional local government bonds are issued, the interest rate at the time of issuance applies, and for funds procured at variable rates, interest expenses can change based on movements in the benchmark market interest rate. Already-planned interest expenses are also substantial.

The cost difference from rising rates is not insignificant. If the same interest rate applied to the 6.30 trillion won principal in the current repayment plan, annual interest at 2.9% would be approximately 182.8 billion won, but at 4.265% it would rise to approximately 268.8 billion won. A difference of just 1.365 percentage points in rates results in an approximately 86 billion won increase in annual interest burden.

Ultimately, Gyeonggi Province's fiscal burden is affected not only by "how much was borrowed" but also by "at what interest rate future borrowing will occur." As interest costs increase, the budget allocated to repaying already-procured funds grows, potentially constraining fiscal room available for other policies.

In particular, as the Federal Reserve has left open the possibility of additional tightening after this rate hike, the future movements of U.S. and domestic market interest rates, Gyeonggi Province's additional local government bond issuance scale, and issuance rates are expected to be key variables determining actual repayment burdens.