Moody's Maintains South Korea's Sovereign Credit Rating at 'Aa2, Stable'

by Son Seonhee

Published 21 Apr.2022 19:04(KST)

[Asia Economy Sejong=Reporter Son Seon-hee] The international credit rating agency Moody's maintained South Korea's sovereign credit rating and outlook at 'Aa2, stable' on the 21st. It also forecasted this year's economic growth rate to remain at 2.7%, the same as the previous projection.

According to the Ministry of Economy and Finance on the day, Moody's explained the credit rating evaluation result as "reflecting the solid growth outlook of the Korean economy based on a diversified economic structure and high competitiveness, as well as institutional response capabilities to medium- and long-term risks such as aging."

Despite the global economic slowdown and Russia's invasion of Ukraine, Moody's projected "a moderate growth of 2.7% due to factors such as semiconductor boom and recovery in private consumption."

In the long term, it anticipated that "excellent innovation capabilities and competitiveness, efforts to transition to a digital and green economy such as the Korean New Deal, will offset potential growth rate decline factors like aging and household debt, sustaining growth in the 2% range for the coming years."

It expected the national debt to remain at a high level and judged that the expansionary fiscal policy stance is likely to continue even after the COVID-19 pandemic to address inclusive growth and aging.

Regarding South Korea's geopolitical risks such as recent North Korea's missile launch tests, Moody's assessed that these continue to be persistent rating pressure factors but with lower tension intensity compared to the past.

Future upward rating factors for South Korea include ▲economic and structural reforms to enhance potential growth and overcome aging ▲mitigation of geopolitical risks such as reduction in the threat of war on the Korean Peninsula; downward factors include ▲structural damage to potential growth due to internal and external shocks ▲significant deterioration of government finances ▲escalation of geopolitical risks.

The Ministry of Economy and Finance stated regarding Moody's credit rating evaluation result, "It reconfirmed the positive view on the solid fundamentals and strong resilience our economy has shown over the past two years." It added, "Credit rating agencies have recently commonly focused on increased fiscal demands due to demographic changes such as aging and government efforts to stabilize finances," and "We will continue to communicate closely with international rating agencies such as Moody's, actively share our economy's resilience and policy directions, and make every effort to enhance external credibility."