Fitch, one of the world's top three credit rating agencies, forecasted on the 6th (local time) that political risks would persist for several months due to the aftermath of the emergency martial law situation. It also analyzed that if the situation prolongs, downward pressure on credit ratings could increase.
In its report titled "Despite Political Volatility, South Korea's Credit Fundamentals Remain Intact," Fitch stated, "If the political crisis prolongs or continuous political division weakens policy-making efficiency, economic performance, or fiscal conditions, downside risks to credit could increase."
However, the basic outlook remains that political uncertainty does not pose a sustained or material threat to South Korea's sovereign credit rating of 'AA-/Stable' supported by economic and external creditworthiness.
Fitch assessed, "Issues raised by the declaration of martial law are expected to be resolved through constitutional procedures," adding, "Checks and balances within South Korea's institutions appear to remain generally robust."
Furthermore, Fitch evaluated that swift measures by the Bank of Korea and the Ministry of Economy and Finance have eased pressures on the exchange rate and financial markets, keeping market risks at manageable levels. It also noted that despite experiencing political volatility such as the impeachment of former President Park Geun-hye in 2016-2017, the sovereign credit rating was not significantly impaired.
However, Fitch emphasized that the mere declaration of emergency martial law could weaken investors' perception of political risk, and recent events?including frictions between the legislative and executive branches that reduce the government's ability to implement its agenda, as well as ongoing politically sensitive cases led by the prosecution and the Board of Audit and Inspection?reflect tensions within the political sphere.
Fitch added, "If political uncertainty prolongs, it could undermine the confidence of households and businesses and put pressure on public finances."
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