Pitch maintains South Korea's sovereign credit rating and outlook at AA- and stable... Government "Reconfirms external creditworthiness" (Comprehensive)

Fitch Maintains South Korea's Sovereign Credit Rating and Outlook for Over 8 Years
Government: "We Will Actively Communicate with Rating Agencies to Closely Manage the Sovereign Credit Rating"

[Image source=Reuters Yonhap News]

[Sejong=Asia Economy Reporter Kim Hyunjung] 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 have viewed 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 stability, 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 measures, South Korea has 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 spending pressures from aging could pose fiscal risks, and the productivity of government investment spending is important."

Furthermore, Fitch assessed, "Household debt repayment capacity and banking sector soundness are currently good, but vulnerabilities are increasing due to the growth in household debt size," and "Robust external stability, 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, "These constrain the credit rating, diplomatic efforts over the past six months have stagnated, and the outlook for inter-Korean relations has worsened."

Regarding Fitch's recent evaluation, the Ministry of Economy and Finance self-assessed that it reaffirmed South Korea's external creditworthiness. The ministry explained, "Amid the global economic downturn and the unprecedented number of sovereign credit rating and outlook downgrades, it is significant that South Korea's external creditworthiness has been reaffirmed."

In fact, Fitch has downgraded the sovereign credit ratings or outlooks of 107 countries in 211 cases as of the 6th this year. Notably, it downgraded the sovereign credit ratings of the United Kingdom (AA→AA-, Negative, March 27) and Canada (AAA→AA+, Stable, June 24), and lowered the outlooks of the United States (AAA, Stable→Negative, July 31) and Japan (A, Stable→Negative, July 28).

An official from the Ministry of Economy and Finance stated, "We plan to actively communicate with rating agencies using non-face-to-face methods such as conference calls and closely manage the sovereign credit rating going forward."

Meanwhile, Moody's and S&P, two of the world's top three rating agencies, rate South Korea's sovereign credit rating and outlook as Aa2, Stable (since December 18, 2015) and S&P AA, Stable (since August 8, 2016), respectively. Fitch has maintained South Korea's sovereign credit rating at 'AA-, Stable' for over eight years since September 6, 2012, through this evaluation.

This content was produced with the assistance of AI translation services.