An increase in South Korea's tax revenues in the first four months of this year will have a positive effect on its credit ratings as it can support the government's costly stimulus packages, Moody's Investors Service said Thursday.
In December, Moody's upgraded Korea's credit ratings to Aa2 from Aa3 and changed the outlook to stable from positive, citing its stronger economic and fiscal fundamentals compared to China and euro-zone countries.
"The increased tax revenue reflects an increase in corporate profits and a rise in consumption, which indicates that the government's policies to boost domestic demand to offset weak external demand are working. It is important given the Korean economy's openness and dependence on China," the New York-based credit ratings agency said in a statement.
Seoul's fiscal stimulus in the form of tax cuts and extra public spending in 2015 contributed to slightly improved domestic consumption, which in turn resulted in higher tax revenues in the January-April period, the statement said.
Corporate income tax revenues jumped 31 percent in the four months from a year earlier. Value-added tax income climbed 22 percent during the same period, Moody's said, citing government data.
Largely affected by further growth slowdown in China, however, Moody's expected the country's economy to "slow slightly" to 2.5 percent this year from a growth of 2.6 percent in 2015 and the previous year's 3.3 percent growth.
China remains Korea's largest export destination, accounting for 26 percent of exports last year.
If consumer spending slows down in coming months, the government is set to announce additional stimulus programs for the second half of this year to support Asia's fourth-largest economy. (Yonhap)
