The government neared its legal limit for temporary borrowing ― 20 trillion won ($17.56 billion) ― due to increased loans taken out by the Bank of Korea, stoking concerns of a negative impact on the central bank’s credit and monetary policy.

As of the end of June, the government’s temporary borrowing stood at 19.1 trillion won, including 8.1 trillion won in treasury bill balance and another 11 trillion won in the central bank’s outstanding loans.

Treasury bills have a maturity of one to three months, and loans taken out by the BOK must be repaid in the same year.

Despite the increased issuance of treasury bills this year as tax revenues were low and the government needed quick cash to stimulate the economy, the BOK’s temporary borrowing also rose sharply.

A steep rise in temporary loans causes changes in the amount of currency in circulation, which could lead to restrictions in the BOK’s credit and monetary policies.

When tax revenues were high in 2007 and 2008, the government did not issue treasury bills. When the global financial crisis hit the Korean economy between 2009 and 2010, the government covered its spending by having the BOK borrow money, instead of issuing treasury bills.

The central bank borrowed 22.9 trillion won in 2009, up from 1.1 trillion won in 2008, and some 40.3 trillion won in just the first eight months of 2010.

The Board of Audit and Inspection and the National Assembly pointed out in 2010 that increasing the BOK’s borrowing was undesirable and the government resumed issuing treasury bills.

Last year, it raised 11.7 trillion won by issuing treasury bills, and the BOK borrowing was reduced to 8 trillion won.

This year, the government has issued treasury bills worth 19 trillion won so far ― 5 trillion won in March, 4 trillion won each in April, May and June, and 2 trillion won in July.

The BOK’s outstanding loans, nevertheless, rose by over 11 trillion won by mid-July.

The government spent some 168.6 trillion won, or 60.9 percent of its annual budget, in the first half of this year, hoping to stimulate the economy.

The Finance Ministry said it has paid off 5.8 trillion won as of Monday, leaving the temporary borrowing balance at 13.3 trillion won, and plans to repay the loans gradually within this fiscal year.

The ministry said it has minimized the impact of BOK loans on the credit and monetary policy through consultations with the central bank on the size and timing of the borrowing.

By Kim So-hyun (sophie@heraldcorp.com)