Review of Korea’s Sovereign Credit Ratings
S&P Global affirmed its long-term sovereign credit rating for Korea at AA with a Stable Outlook in late April 2022, recognizing the Korean government’s prudent policy-making, sound fiscal position, high monetary flexibility, and robust net external creditor position. Korea’s credit rating has been kept at AA (Stable), the third highest rating by the credit rating agency, since August 2016 when it was upgraded from AA-.
The Korean economy is expected to grow faster than most other high-income economies in the next three to five years, with its GDP per capita estimated to reach USD 40,000 in 2025, according to a rating report released by S&P Global. The agency expects demand for the country's competitive manufacturing products to remain strong, fueling growth in exports and investments. When it comes to geopolitical risks, S&P Global does not see that risks on the Korean Peninsula will escalate to the point of hurting the country’s economic fundamentals. Beyond the next three to five years, Korea's ability to sustain external competitiveness and healthy GDP growth will depend on productivity improvement as the country's population ages.
The credit rating agency cautioned, however, that it could lower the rating on Korea over the next three to five years if it determines that geopolitical tensions related to North Korea will heighten to the extent of seriously undermining the country’s economic, fiscal or external performance. The rating may be raised if the security and contingent liability risks posed by North Korea ease, according to S&P Global.
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Earlier in January 2022, Fitch Ratings also affirmed Korea’s long-term foreign currency issuer default rating at AA- with a Stable Outlook. In its report, the agency said that Korea’s fiscal conditions from a ratings perspective appear sufficient to accommodate its rising gross government debt/GDP ratio in the near term. However, the rating agency said that a sustained upward trajectory in the debt ratio could cause medium-term rating pressure as Korea's shift towards more active fiscal spending and tolerance of fiscal deficits may become more entrenched.