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Moody's keeps 'Aa2' rating on S. Korea with stable outlook

Finance 10:00 May 12, 2021

By Kim Soo-yeon

SEOUL, May 12 (Yonhap) -- Global credit appraiser Moody's Investors Service said Wednesday it has maintained its credit rating on South Korea at "Aa2," with a stable outlook.

Moody's has kept South Korea's sovereign credit rating at "Aa2," the third-highest level on the company's table, since December 2015, when the agency upgraded it from "Aa3."

"Korea's Aa2 sovereign rating with a stable outlook reflects the very strong fundamentals that have underpinned its resilient recovery from the pandemic shock," Moody's said in a statement.

Moody's revised up its 2021 growth outlook for South Korea to 3.5 percent from its February forecast of 3.1 percent, citing "strong demand for exports and accommodative fiscal strategy."

This image shows the logo of global credit appraiser Moody's Investors Service. (Yonhap)

Moody's outlook is higher than the 3 percent growth estimate by the Bank of Korea and the 3.3 percent growth forecast by the Organization for Economic Cooperation and Development.

The International Monetary Fund and another global rating agency, Standard & Poor's Global Ratings (S&P), put the 2021 growth estimate at 3.6 percent.

President Moon Jae-in said Monday that the government will make efforts to prompt the country's economy to grow at least 4 percent this year. The finance ministry earlier penciled in the growth rate in the mid-to-high 3 percent range.

The South Korean economy is on a recovery track on the back of robust exports of chips and autos. Last year, Asia's fourth-largest economy contracted 1 percent amid the COVID-19 pandemic.

Moody's said rising government debt, rapid aging and tensions with North Korea will serve as the primary credit challenges for South Korea.

The agency said South Korea's long track record of fiscal discipline is expected to be put to the test as its record-high government debt will likely increase further amid the country's expansionary fiscal policy.

"But Moody's expects Korea's debt affordability to remain strong, as revenue recovers gradually and the average cost of debt stays broadly stable amid deficit funding and refinancing in a low interest rate environment," Moody's said.

South Korea's national debt grew by the largest-ever amount of 123.7 trillion won (US$110 billion) on-year to a record 846.9 trillion won last year.

Accordingly, the country's debt-to-gross domestic product (GDP) ratio came to 44 percent last year, up from 37.7 percent the previous year, according to Seoul's finance ministry. The ratio may reach 48.2 percent this year.

This file photo, taken April 1, 2021, shows ships carrying containers docking at a port in South Korea's southeastern city of Busan. (Yonhap)

sooyeon@yna.co.kr
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