South Korea’s rating upgraded to gAA3(pi) on economic resilience, fiscal prudence
KUALA LUMPUR: RAM Ratings has upgraded South Korea’s global-scale rating to gAA3(pi)/Stable from gA1(pi)/Positive.
The upgrade is premised on the country’s proven track record of economic resilience in the face of domestic and external challenges, prudent fiscal management and sustained implementation of measures in managing contingent risks stemming from governmentlinked entities.
Furthermore, South Korea has maintained a sturdy external balance sheet with consistently wide current-account surpluses and a stronger net external creditor position since the latter turned positive in 2014.
“South Korea’s diversified and competitive economy, along with credible policies and a strong institutional framework, continues to underline the country’s solid credit fundamentals, most notably in weathering economic and political headwinds in 2016,” said Esther Lai, RAM’s Head of Sovereign Ratings.
The country has maintained commendable economic growth averaging 2.8 per cent in the past five years, which outpaced the 1.7 per cent average of developed economies during the same period.
RAM expects South Korea’s economy to register a stable growth rate of around 2.8 per cent in 2017, backed by sustained recovery in external trade, accelerated domestic demand owing to the improving sentiment following the resolution of political uncertain- ties, as well as supportive government policies.
The new administration – elected into office in May – has introduced a supplementary budget plan worth 11 trillion won aimed at stimulating job creation in the public sector and providing wage support for private firms hiring workers on a permanent basis.
The additional spending is viewed as manageable, RAM said, given that it will be funded by a higher-than-budgeted tax revenue collection during the year.
“The government’s fiscal prudence accords flexibility in implementing necessary stimulus measures while maintaining fiscal indicators at a healthy level, evinced by the general government balance averaging 0.8 per cent of GDP and a moderately low debt level averaging 35.6 per cent of GDP in the past five years,” it added.
“Geopolitical tensions stemming from North Korea have intensified in recent times as a result of the acceleration of its nuclear weapons programme. As such, any severe escalation in the military standoff to an outright war would be seen by RAM as an event risk that would be reflected in South Korea’s rating.
“That said, the US’s military presence and security commitment to South Korea, seen in the recent deployment of an advanced anti-missile system in South Korea, counters the heightened security threat from North Korea.”