Latest data suggests that Korea's external debt may have surpassed the 400-billion US dollar mark.
Experts have warned that 400-billion in foreign liabilities could rattle Korea's financial market, as it will likely spark fears over a shortage in foreign reserves and a liquidity crisis, affecting investor sentiment.
According to the Bank of Korea and the Ministry of Strategy and Finance on Tuesday, Korea's external debt stood at 398-billion dollars during the second quarter, a 15.4 billion dollar increase from the previous quarter.
But this is a slower expansion than the January to March period, when the figure recorded over 22-billion dollar growth.
The finance ministry said a rise in foreign debt is unavoidable to a certain degree, due to Korea's heavy dependence on trade and the size of its economy and added that despite the rise, the overall size of the debt was not very big.
The country's foreign debt compared to its gross domestic product, 37.6 percent in the second quarter, is lower by nearly 15 percentage points than three years ago, when the world was hit by the global financial crisis.
The rise has mainly come from money used in trade financing, foreign currency loans taken out from domestic banks, and more currency stabilization bonds and treasuries issued by the governments.
The ministry noted that foreign investors are increasing their purchases of local treasuries, as they are attracted by Korea's strong economic fundamentals and increased global liquidity.
In fact, currency stabilization bonds and treasuries owned by foreigners stood at 74.2 billion dollars as of June from just 900 million at the end of 2002.
However, a sudden rise in foreign debt increases the risk of sudden rapid foreign capital outflows.
"The finance ministry said it is monitoring the developments in the global financial market and foreign currency markets to steer the Korean economy away from possible shocks triggered by external uncertainties.
Hwang Sung-hee, Arirang News.