South Korea has received the highest sovereign credit rating ever from Standard and Poor’s (S&P), one of the world’s top credit ratings agencies.
The Ministry of Strategy and Finance announced that S&P raised the credit rating for Korea one notch to a record high of AA from AA- on August 8.
AA is the third highest among S&P’s 21 evaluation grades. There are only six countries that are ranked higher than Korea – Germany, Canada, Australia, Singapore, Hong Kong and the United States. Germany, Canada, Australia, Singapore, Hong Kong have an AAA credit rating, while the U.S. has an AA+ rating. Korea now ranks with Belgium, Great Britain and France. However, Korea’s outlook on the long-term rating is stable, which is superior to Great Britain and France with a negative outlook. The country also has a higher rating than neighboring China and Japan. China received an AA-, while Japan received A+.
S&P said that Korea’s sovereign credit rating has been raised due to its steady economic growth, continuous improvement in external metrics and greater fiscal and monetary flexibility. “Korea has exhibited stronger economic performance in recent years than most other high-income economies” the agency said in a statement. “The Korean economy remains well-diversified and is not dependent on a particular industry or export market. The reduction of short-term external bank debt and persistently large trade balances from last year strengthened Korea’s external metrics.” It also noted that the floating exchange rates and the foreign exchange markets serve as strong shock absorbers to external metrics. Korea’s monetary policy regime provides strong support for resilient and sustainable economic growth and the government’s healthy fiscal position offers further support for the sovereign’s creditworthiness, according to S&P.
However, the debt of non-financial public institutions, which amounts to 25 percent of the gross domestic product (GDP), can be a constraint factor of public finance. When the profitability in the banking sector steadily worsens, the government’s finance support is likely to increase. In particular, Korea Development Bank and the Export-import Bank of Korea have low credit ratings and non-financial public institutions have high debt levels. In addition, S&P also cited contingent liabilities, including unification costs, and geopolitical risks, especially provocations from North Korea, as the chief weaknesses in Korea’s credit fundamentals.
S&P expects Korea’s credit rating to remain unchanged over the next two years.
The Original Posted by Jung Suk-yee/Business Korea