Fitch maintains S. Korea’s “AA-” credit rating with stable outlook

Posted on : 2022-09-29 17:35 KST Modified on : 2022-09-29 17:35 KST
The credit appraiser forecast Korea’s economic growth rate as 2.6% for this year and 1.9% for next
Shipping containers can be seen in a port in Busan in this undated file photo. (Yonhap)
Shipping containers can be seen in a port in Busan in this undated file photo. (Yonhap)

Fitch Ratings, an international credit rating company, announced on Wednesday that it would be maintaining South Korea’s national credit rating at AA- with a “stable outlook.”

AA- is the fourth highest among the Fitch ratings. The UK, Belgium, Ireland and Hong Kong all currently rank the same as South Korea, which has maintained this rating for 10 years, since September 2012.

According to Fitch predictions, South Korea's real economic growth rate will reach 2.6% this year and 1.9% in 2023.

“The sharp slowdown in global growth, along with consumption-switching to services, will weigh on Korea's exports and facilities investment,” Fitch stated.

The domestic consumer price index inflation figures were also forecasted to decline to around 5.0% by this year end and 1.5% by the end of 2023.

The current upward trend is expected to slow in the future due to weakening raw material prices and monetary tightening measures.

Meanwhile, the forecast for the debt-to-GDP ratio for 2025 has been lowered from 58.6% to 51.5%.

When Korea’s rating was first announced in January, Fitch had pointed out that the increase in national debt would be a factor for a medium-term downturn. However, this time around, the debt outlook has been improved and it is estimated that downgrade factors will be eased.

“Fitch believes Korea's external finance position provides a sufficient buffer to manage the current bout of external volatility,” the company stated.

In other words, despite recent trade deficits and the decrease in foreign exchange reserves, Korea is maintaining good external soundness “due to Korea’s strong net external creditor position and history of persistent current account surpluses.”

Fitch also explained that Korea's foreign exchange reserves “remain sound compared with peers,” recording about six months of current external payments in 2022 (median for AA countries is 2.2 months).

Fitch cited a significant rise in government debt to GDP, economic or financial sector distress resulting from impaired household debt-servicing ability, and a rise in geopolitical risks on the Korean Peninsula as factors that could lead to a downgrade in Korea’s rating.

On the other hand, a structural easing of geopolitical risks, improved governance standards, and continued current account surpluses that contribute to a sustained improvement in the net external creditor position were cited as factors that could help Korea upgrade its current rating.

Regarding the current financial situation, South Korea’s Ministry of Economy and Finance said, “The government will work to strengthen communications with global credit rating agencies such as Fitch to enhance the county’s creditworthiness and actively address some concerns about fiscal burdens caused by an ageing society and household debts by attending talks with global rating agencies before and after the G20 Finance Ministers and Central Bank Governors’ Meeting.”

By Park Jong-o, staff reporter

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