Moody's Positively Evaluates "Korea's Fiscal Rules Will Support National Credit Rating"

[Asia Economy Reporter Seulgina Jo] The international credit rating agency Moody’s has positively evaluated the recently announced fiscal rule introduction plan by the government, stating that it "will be beneficial to South Korea's sovereign credit rating."

Christian de Guzman, a researcher at Moody’s, and others stated in an issue report released on the 8th (local time), "South Korea's government debt has surged sharply in the short term, and from a long-term perspective, fiscal expenditure pressure is increasing due to aging," highlighting this point.

The report predicted, "If the prudent fiscal rule is implemented, it will send a warning signal regarding the increasing national debt burden after the COVID-19 shock and contribute to stabilizing the national debt."

It also evaluated that "compared to other countries with similar credit ratings, South Korea can maintain a relatively superior fiscal condition," and "even if the national debt ratio reaches the fiscal rule ceiling of 60%, South Korea's debt level is lower than countries with similar credit ratings (Aa2) such as France or the United Kingdom."

The government recently announced a fiscal rule introduction plan that includes managing the national debt ratio to GDP at 60% and the consolidated fiscal balance within -3% starting from 2025. However, it decided to allow flexibility by making exceptions in cases of social or natural disasters like the novel coronavirus infection (COVID-19) or concerns about economic recession.

In this regard, during the National Assembly’s Planning and Finance Committee audit on the 7th, criticism was raised mainly by the ruling party that such fiscal rules could be restrictive in a situation where expansive fiscal policy is needed to respond to COVID-19.

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