Fitch Ratings Inc. reaffirmed South Korea’s sovereign credit rating at AA- with a “stable” outlook, citing robust external finances and resilient macroeconomic performance despite worrisome debt buildup, while forecasting economy to expand 4.5 percent this year.
On Wednesday in local time, Fitch Ratings kept Korea’s long-term foreign-currency debt unchanged at AA-, crediting the country as having “robust external finances, resilient macroeconomic performance and modest fiscal headroom against geopolitical risks related to North Korea and medium-term structural challenges from an ageing population.”
The agency noted that “the strong economic recovery, underpinned by the government’s effective management of the coronavirus pandemic and a dynamic export sector, should continue to support Korea’s credit metrics in the near term.”
Fitch had kept Korea’s rating at AA- – the fourth-highest rating in its credit scale – since 2012. The agency lowered the ratings of 18 advanced economies including the United Kingdom, Canada, France, Japan, and the United States after Covid-19 outbreak but maintained its rating on Korea.
Fitch Ratings forecast Korea’s real gross domestic product to grow by 4.5 percent this year on the back of speedy vaccination rollout, although a “increase in coronavirus cases poses downside risks to our expectations of a domestic consumption recovery” in the second half “as social distancing restrictions have been tightened to their highest level during the pandemic.
It projected a 3.0 percent growth in 2022, noting that vaccination rollout and additional fiscal support should “facilitate a sustained recovery in domestic consumption through 2022.”
Korea, however, faces medium-term growth pressures from its rapidly aging population, it warned. Higher debt burden is also a risk to Korea’s public finances.
Fiscal deficit is expected to widen to 4.4 percent of GDP this year, up from 3.7 percent in 2020.
Geopolitical risk remains relatively stable “for the time being” as North Korea has “limited its military provocations” and “efforts are underway by the new U.S. administration and South Korea to restart negotiations over denuclearization.”
By Lee Eun-joo
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