Moody's Meets Koo Yooncheol: "Korea's Fiscal Situation Still Manageable"

Moody's: Korea's Fiscal Situation Remains Manageable Compared to Major Economies
Deputy Prime Minister Koo Discusses Economic Outlook and Policy Directions with Moody's
Concerns Remain Over Rapidly Rising National Debt and Low Growth
Government Pledges Performance-Oriented Fiscal Management and Structural Reforms

Deputy Prime Minister and Minister of Economy and Finance Koo Yoonchul is meeting with Anushka Shah, Director of Moody's Asia-Pacific Sovereign Ratings, on the afternoon of the 8th at the Government Seoul Office in Jongno-gu, Seoul. (Source: Ministry of Economy and Finance)

On August 10, international credit rating agency Moody's stated, "Korea's fiscal situation remains manageable in terms of fiscal costs and debt burden compared to major advanced economies."

Deputy Prime Minister and Minister of Economy and Finance Koo Yooncheol met with the annual Moody's consultation team at the Government Seoul Office on the afternoon of the 8th to discuss Korea's economic situation and key policy directions.

Moody's assessed, "With the launch of the new administration, the political turmoil that had persisted for more than six months has come to an end," and added, "Based on a favorable political environment, it has become easier to pursue structural reforms and legislative tasks aimed at enhancing potential growth rates."

During this annual consultation, Moody's reportedly focused on the rapidly increasing national debt and the growing pressure on fiscal expenditure. As of the end of May, the central government’s outstanding debt, reflecting the first supplementary budget, stood at 1,217.8 trillion won, surpassing the 1,200 trillion won mark for the first time.

On this day, Moody's evaluated Korea's fiscal status as "still manageable." However, there are concerns that if the pace of national debt growth continues to outstrip the growth of gross domestic product (GDP) amid a prolonged low-growth environment, Korea’s credit rating headroom could be further reduced in the future.

At the meeting, Deputy Prime Minister Koo stated, "We will operate fiscal policy with the goal of creating a virtuous cycle in which bold fiscal investment leads to highly productive investment effects that support growth, and economic growth in turn reduces the debt ratio."

Regarding the impact of demographic changes such as population aging on mid- to long-term fiscal capacity, he explained, "We will focus support on areas where it is needed, and boldly restructure unnecessary parts through performance-oriented fiscal management, so that fiscal policy can play its essential role as a catalyst while ensuring sustainability to respond to mid- and long-term demand."

He also emphasized recent positive signs such as improvements in the consumer sentiment index. Deputy Prime Minister Choi stressed, "We will turn the recent changes in international conditions into new opportunities for the Korean economy by strengthening alliances with the United States in sectors such as shipbuilding, semiconductors, and secondary batteries."

This annual consultation, conducted as part of the new rating evaluation, focused on changes in economic policy resulting from martial law and the early presidential election, the implementation status and possibility of additional supplementary budgets, the increase in household debt, and the recently concluded tariff negotiations with the United States.

In December 2015, Moody's upgraded Korea's sovereign credit rating from Aa3 to Aa2 and has maintained this rating for ten consecutive years. Previously, in May of last year, Moody's also maintained Korea's sovereign credit rating and outlook at the existing level (Aa2, stable).

Fitch and S&P also released evaluation results in February and April, respectively, maintaining their existing ratings and outlooks for Korea based on their annual consultations.