Fitch Maintains South Korea's Sovereign Credit Rating at 'AA-' with a 'Stable' Outlook

South Korea's Growth Rate Expected in the 3% Range This Year... "Sustained Increase in National Debt Ratio Could Pressure Credit Ratings in the Medium Term"

[Asia Economy Sejong=Reporter Kwon Haeyoung] The international credit rating agency Fitch has maintained South Korea's sovereign credit rating at 'AA-' and its rating outlook as 'Stable.'

The Ministry of Economy and Finance announced on the 27th that Fitch has kept South Korea's sovereign credit rating and outlook at the current level.

Fitch explained, "This is the result of a balanced reflection of South Korea's economic strengths such as strong external soundness including exports and economic recovery achievements, geopolitical tensions related to North Korea, a lower governance index (World Bank) compared to similarly rated countries, and structural challenges due to aging."

Fitch expects the Korean economy to record a growth rate in the 3% range this year due to consumption recovery and strong exports. It added, "Despite risks such as strengthened social distancing and the Omicron variant, the consumption recovery trend will continue, and exports will remain robust. However, the strong performance is expected to weaken somewhat due to China's economic slowdown."

Regarding the increase in national debt, Fitch analyzed, "It appears that the government's proactive fiscal spending and tolerance for fiscal deficits are strengthening," and "Given the long-term expenditure needs due to aging, this could act as a factor pressuring the credit rating in the medium term."

Concerning inflation, Fitch forecasted that the Bank of Korea's two 25bp base rate hikes this year will gradually ease the inflation rate this year and next. Although household debt increased last year due to rising housing prices, the risk of defaults is considered to be well controlled.

The Ministry of Economy and Finance evaluated Fitch's decision to maintain the sovereign credit rating by stating, "This assessment reconfirmed that the positive view on the solid fundamentals and strong resilience our economy has shown over the past two years remains valid." It added, "We also confirmed that the rating agency emphasizes securing fiscal capacity to respond to structural risks such as aging and is paying attention to the government's efforts to stabilize fiscal conditions. The government will continue to communicate closely with international rating agencies such as Fitch and make every effort to enhance external credibility by actively sharing the resilience of our economy and policy directions."