SEJONG, March 22 (Korea Bizwire) – Global rating agency Moody’s Investors Service said Tuesday that it maintains its rating on South Korea at a record high of Aa2, citing its sound economic fundamental and reduced vulnerability to external risks, with its rating outlook also remaining stable.
But the escalating tension stemming from North Korea’s recent provocations poses a risk to Asia’s fourth-largest economy, it added.
In December of last year, Moody’s upgraded South Korea’s credit rating to Aa2 from Aa3, the highest-ever rating the country has received from the credit appraiser.
Aa2 is the third-highest rating on the credit table, with only six other countries out of the Group of 20 advanced and developing nations currently with that rating.
“The government of Korea’s Aa2 rating and the country’s Aaa country risk ceiling reflect Korea’s very high economic, institutional and fiscal strength, and moderate susceptibility to event risks stemming from North Korean military provocations and regime instability,” Moody’s said in its latest report titled “Credit Opinion.”
“Korea’s overall growth dynamics have proven fairly immune to external financial market fluctuations and turmoil in the past, and it is one of the few countries that did not enter into a recession in 2009.”
It said South Korea is expected to retain its robust economic growth over the long term with higher per capita gross domestic product.
Fiscal and monetary policies of Asia’s fourth-largest economy have successfully managed to keep relatively low inflation rates and contributed to stable economic growth.
“The government’s prudent fiscal policy stance and comparatively robust growth prospects over the medium term will be positive for the country’s government debt trajectory.”
However, Moody’s pointed out that North Korean risks are negative factors for South Korea’s credit rating as geopolitical tension escalated on the Korean Peninsula after Pyongyang’s nuclear test in January and rocket launch in February.
But it forecast that the immediate tension will unlikely affect the company’s credit rating assessment as the U.S.-South Korean alliance will deter a possible war outbreak on the peninsula.
“From a sovereign credit perspective, geopolitical event risk lies more in the potential for an internal regime collapse in North Korea leading to acute financial strains for South Korea’s government for an extended period,” it said.
Moody’s also warned South Korea of negative economic impacts of rising household debt, which well surpassed 1,200 trillion won (US$1 trillion) in total for the first time last month.
“While still relatively elevated levels of household debt do not pose an imminent threat to financial stability, we see them as a potential drag on consumption and overall GDP growth if and when households are forced to consolidate,” it noted.’