Can foreign visitors fix Korea's chronic travel deficit?

Incheon International Airport was packed with outbound travelers in July as the peak summer holiday season got underway, pushing the travel account back into deficit from the previous month. Yet the gap shrank to roughly a third of what it was a year earlier — the smallest July deficit since 2020, when the COVID-19 pandemic effectively shut down international travel. The improvement reflects foreign visitors spending in Korea at a far faster pace than Koreans spending abroad.

According to the Bank of Korea, the travel account posted a deficit of $342.9 million in July. The balance had recorded surpluses in May and June before swinging back into the red for the first time in three months, as more Koreans headed overseas during the summer holiday season.

The travel account measures the difference between what foreign tourists spend in Korea — travel receipts — and what Korean nationals spend abroad, or travel payments. The wider the gap between outbound Korean spending and inbound foreign spending, the larger the deficit. The Bank of Korea said the return to deficit after three months was driven by a rise in departures, partly due to the summer travel peak and the reinstatement of Constitution Day as a public holiday. The number of departures in July jumped about 20.6 percent from June to about 2.419 million, up from about 2.005 million.

Looked at on a July-to-July basis, however, this year's figure marks a clear improvement. Last July's travel deficit stood at $917 million — nearly three times the current shortfall — meaning the gap narrowed by more than 62 percent in a single year.

Going further back, the only July in recent memory with a smaller deficit was 2020 ($304 million), when borders were in effect closed due to COVID-19. Excluding that year, the July deficit is the smallest since 2001 ($256.3 million) — a 25-year low. In the 2015–2019 period, the July deficit ranged from $1.2 billion to $1.8 billion.

The narrowing this July was driven by a sharp rise in travel receipts. While the amount Koreans spent abroad remained roughly flat compared with last year, the amount foreigners spent in Korea rose 27.3 percent, from $2.1 billion to $2.67 billion. With outflows holding steady and inflows rising, the deficit shrank accordingly.

According to the Korea Tourism Organization, about 2.09 million foreign tourists visited Korea in July, up 20.8 percent from about 1.73 million in the same month last year. By country, Chinese visitors were the largest group at 777,000, followed by Japanese at 330,000, Taiwanese at 261,000, Americans at 150,000 and Hong Kong visitors at 76,000.

Against this backdrop, card spending by foreign visitors in Korea surged in the second quarter, with non-residents' domestic card use hitting an all-time high.

According to Bank of Korea data on residents' overseas card use in the second quarter, non-residents' domestic card spending in Korea reached $4.86 billion in the second quarter of this year, up 36.1 percent from the previous quarter's $3.57 billion.

The figure also surpassed the previous record set in the second quarter of last year — $3.79 billion — by 28.2 percent.

The number of cards used by non-residents domestically rose 34.3 percent quarter-on-quarter to 25.02 million, while spending per card edged up 1 percent to $194.

The Bank of Korea attributed the surge to increased tourist arrivals driven by public holidays in Japan and China during the second quarter, adding that the number of cards used by non-residents in Korea also set a quarterly record.

Korean residents' overseas card spending — covering both credit and debit cards — totaled $5.85 billion in the second quarter, down 4.2 percent from $6.1 billion the previous quarter.

Spending per card also fell 0.9 percent quarter-on-quarter to $322 — the first such decline in six quarters.

Credit card spending fell 0.6 percent to $4.08 billion, while debit card spending dropped 11.5 percent to $1.77 billion.

A Bank of Korea official said the sharp rise in foreign arrivals in recent months has helped narrow the travel account deficit compared with the past, adding that "the chronically deficit-prone structure of the travel account is showing signs of improvement." The cumulative travel account deficit for the January–July period this year stood at $2.75 billion — roughly a third of the $7.53 billion recorded in the same period last year and the smallest such deficit since 2009 ($2.18 billion), a 17-year low.

To build a structure capable of sustaining a travel account surplus, analysts say Korea must both attract more foreign tourists and maximize the economic impact of their visits. A Bank of Korea report on the growth effects and policy direction of the tourism industry from a service exports perspective found that Korea's tourism export ratio to GDP stood at 1.17 percent last year, 0.29 percentage points below Japan's 1.46 percent. The central bank recommended that to translate the recent rise in foreign arrivals into tangible economic gains, Korea should focus not only on drawing more visitors but also on improving their spending patterns and raising the value-added rate of core tourism industries.