Fitch Maintains South Korea's Sovereign Credit Rating at AA- with Stable Outlook (Complementary)
[Sejong=Asia Economy Reporter Kim Hyun-jung] On the morning of the 7th, international credit rating agency Fitch announced that it would maintain South Korea's sovereign credit rating and outlook at the current level of 'AA-, Stable.' Fitch is one of the rating agencies that view the economic downturn caused by the COVID-19 pandemic with great concern, having downgraded the sovereign credit ratings or outlooks of countries such as the United Kingdom, Canada, the United States, and Japan this year.
Regarding this evaluation, Fitch explained that it reflects South Korea's sound external soundness, continuous macroeconomic performance, and fiscal capacity under medium-term challenges such as geopolitical risks related to North Korea, aging population, and moderate growth.
Fitch also emphasized productivity in fiscal spending. In a press release related to South Korea, Fitch stated, "Although fiscal deficits are expected to increase due to COVID-19 response, South Korea holds short-term fiscal capacity due to its history of sound fiscal management, and recently the Korean government announced a fiscal rule (draft)." However, it added, "High debt levels under expenditure pressures from aging could pose fiscal risks, and the productivity of government investment spending is important."
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Furthermore, Fitch assessed, "Household debt repayment capacity and banking soundness are currently sound, but vulnerabilities are increasing due to the growth in household debt size," and "Robust external soundness, including large net external creditor position, continuous current account surpluses, and sufficient foreign exchange reserves, provides a buffer against global financial market volatility." Regarding geopolitical risks related to North Korea, Fitch diagnosed, "They constrain the credit rating, diplomatic efforts over the past six months have been stagnant, and the outlook for improvement in inter-Korean relations has worsened."
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