FINANCE

Fitch keeps S. Korea’s credit sovereign at AA-

By Byun Hye-jin
  • Published : Sept 7, 2021 - 19:41
  • Updated : Sept 8, 2021 - 09:07

Cargo ships anchored at Busan Harbor (Yonhap)
Global credit appraiser Fitch Ratings said Tuesday that it would maintain South Korea’s credit rating and keep the economic growth projection positive, citing economic resilience, despite the latest wave of the pandemic hitting the country.

During a webinar on assessing regional outlooks, Jeremy Zook, director at Fitch Ratings, expected the credit rating for Asia’s fourth-largest economy to remain intact from its July projection of AA-, the fourth-highest level of the agency’s sovereign ratings. It has stayed at the same level since 2012.

“Although we are seeing a recent uptick in coronavirus cases in Korea, the underlying fundamental drivers of the rating remain in place. The country is seeing an increase in debt ratio, however, it remains in line with peers. In that sense, Korea does still have a bit of fiscal space from rating’s perspective,” Zook said.

Since July, South Korea has been struggling to contain the fourth wave of the pandemic spurred by the spread of the highly transmissible delta variant, prompting the government to raise its social distancing rules to the highest level.

Zook added that the country still has a quite sound external finance position due to persistent current account surpluses and relatively strong reserve buffers that help manage external volatility and shield it from the economic fallout from the pandemic.

But Zook warned that Korea faces some challenges in maintaining the current rating over the long run.

“Korea is dealing with aging demographics as well as a sustained upward trajectory in the debt ratio, in which the government has recently projected,” he said.

As for the economic growth outlook, Maxime Darmet, another director at Fitch Ratings, painted a rosy forecast.

“We think the growth outlook is pretty solid for 2021 and also for 2022. Despite the coronavirus outbreak for the past two months, we don’t see a big hit in the recent data,” Darmet said.

In July, the rating firm expected South Korea’s real gross domestic product, adjusted for inflation, to rise 4.5 percent in 2021, higher than estimates of a 4.0 percent growth suggested by the Bank of Korea and Moody’s Investors Service.

On the external front, Darmet said that the country’s economy will see a strong demand for its semiconductors and cars.

“Unlike other countries, Korean manufacturers have not been impaired by supply disruptions so far. So even if trade slows down a little bit, it is unlikely to be a big obstacle for the export-oriented economy of Korea,” Darmet said.