S&P Maintains South Korea's Sovereign Credit Rating at AA Stable... North Korea and Public Enterprise Debt Risks (Comprehensive)

S&P Maintains South Korea's Sovereign Credit Rating at 'AA'
"Relatively High Growth Expected Over the Next 3-5 Years"

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The international credit rating agency Standard & Poor's (S&P) has decided to maintain South Korea's long-term sovereign credit rating at 'AA'. S&P forecasted that South Korea will record relatively high growth rates over the next 3 to 5 years. However, it noted that the North Korean factor and public enterprise debt risks could pose threats to fiscal soundness.

On the 28th, S&P decided to keep South Korea's long-term sovereign credit rating at the previous rating of 'AA'. The rating outlook was also maintained as 'stable' as before. The short-term sovereign credit rating was also kept at the existing 'A-1+'. Since upgrading South Korea's sovereign credit rating from 'AA-' to 'AA' in August 2016, S&P has maintained this rating.

According to S&P, South Korea suffered less economic damage from COVID-19 compared to other high-income countries, and relatively high growth rates are expected over the next 3 to 5 years.

This year, South Korea's economic growth rate is projected at 3.6%. Next year's growth rate is expected to be 3.1%, and 2.5% in 2023.

Accordingly, the per capita Gross Domestic Product (GDP) is expected to increase to $42,400 in 2024. It was evaluated that limited domestic demand contraction was supported by fiscal aid, and the manufacturing sector's favorable performance due to active investment also contributed.

Due to the impact of COVID-19, the general government fiscal deficit is expected to continue until 2022, but it is forecasted to turn into a surplus in 2023 with economic recovery.

However, North Korean risks and unification costs are significant threats to fiscal soundness, and public enterprise debt also constrains the fiscal position.

It also stated that the successful operation of the inflation targeting framework and monetary policy based on central bank independence contribute to economic stability. S&P assessed that although the high level of household debt limits monetary policy, efforts to convert housing mortgage loans to 'fixed-rate installment repayment' mitigate risks.

The government said, "S&P's decision to maintain the credit rating reconfirms external confidence in our economy amid global economic difficulties following COVID-19," adding, "Given that 113 countries' sovereign credit ratings or outlooks have declined recently after COVID-19, maintaining the existing rating is highly meaningful." It also stated, "We will do our best to enhance external credibility by strengthening communication with S&P regarding our economic trends and key issues."

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