Japan JCR upgrades South Korea's sovereign credit rating to 'AA'... Outlook remains 'Stable'

"Regulatory Reform to Promote Investment, Economic Revitalization and Industrial Structure Improvement Expected through R&D Support"

Due to the sharp decline in the U.S. stock market, the domestic stock market also started lower on the 30th. Dealers are busy working in the dealing room of Hana Bank in Euljiro, Seoul. Photo by Moon Honam munonam@

[Asia Economy Sejong=Reporter Kwon Haeyoung] The Japanese credit rating agency JCR has upgraded South Korea's sovereign credit rating from 'AA-' to 'AA'. The rating outlook remains 'stable.'

The Ministry of Economy and Finance announced on the 30th that JCR had raised South Korea's sovereign credit rating by one notch. The reasons cited for the upgrade included improvements in the industrial structure, enhanced resilience to external shocks, and the maintenance of a solid fiscal foundation.

In its rating report, JCR stated, "The new government plans to focus on a private and market-centered economy by promoting regulatory reforms, research and development (R&D) support, and labor reforms," adding, "Regulatory reforms and R&D support to promote investment will lead to short-term economic stimulus as well as improvements in the industrial structure."

JCR also expected fiscal soundness to improve. It noted, "South Korea's national debt ratio rose to 46.9% of GDP at the end of 2021, but this is still low compared to other advanced countries," and considering the new government's stance on strengthening fiscal soundness, it anticipated a gradual improvement in the fiscal balance, which had worsened due to COVID-19.

JCR assessed that South Korea's economic resilience to external shocks has been strengthened. The current account surplus is expanding due to the accumulation of external assets, which is expected to support the current account despite a shrinking goods balance. The net external asset ratio to GDP was high at 36.4% as of the end of 2021, and foreign exchange reserves were sufficient at 2.8 times the short-term external debt. The banking system was also stable, with a capital adequacy ratio and non-performing loan ratio of 16.7% and 0.6%, respectively.

However, the North Korea risk remains a concern. JCR pointed out, "Since 2019, North Korea has frequently launched ballistic missiles, and uncertainty on the Korean Peninsula continues."

JCR is a Japanese credit rating agency established in 1985. Although it has not signed an official contract with the South Korean government, it assigns sovereign credit ratings to set standards for domestic companies issuing yen-denominated bonds.

The Ministry of Economy and Finance stated, "The upgrade of the sovereign credit rating is expected to have a positive effect on domestic companies issuing yen-denominated bonds."