Fiscal Soundness

 

International credit rating agency Moody’s will continue to maintain Korea’s credit rating at “Aa3 (positive)” next year. The company picked not an interest rate hike in the U.S. or Korea’s household debts of more than 100 trillion won (US$86.7 billion), but a slowdown in China’s economic growth, as the largest risk factor in adjustment of Korea’s credit rating. This suggests the fact that Korea’s economic growth is closely connected to the Chinese economy.

“Korea’s fiscal soundness is very strong, that it can support the ‘Aa3’ credit rating,” said Stephen Dick, the vice president of Moody’s, in a joint press conference with Korea Investors Service at the Yeouido Conrad Hotel on Nov. 18.

Moody’s also predicted that Korea’s GDP will grow a mere 2.5 percent next year. The figure is higher than those of Morgan Stanley (2.2 percent), BNP Paribas (2.4 percent) and Citi (2.4 percent), but lower than those of the Bank of Korea (3.2 percent), the International Monetary Fund (3.2 percent) and the Organization for Economic Cooperation and Development (3.1 percent). Excellent fiscal soundness helped Moody’s maintain Korea’s current credit rating.

“Korea’s fiscal soundness is very strong that it can support the ‘Aa3’ credit rating,” Dick said. “Financial market stability and steady regulatory reforms and market reforms for enhancing competitiveness and improving external vulnerability are also underpinning Korea’s Aa3 credit rating.”

In addition, Dick forecasted that household debts will not affect Korea’s credit rating now that the Korean government is excellently dealing with risk factors such as household debts. “Household debts are not only Korea’s problem, but also problems of countries around the world,” Dick said. “We cannot say that Korea’s household debts are greater than those of other countries. But they are not a risk factor, since the Korean government knows this problem and is showing a sign of moving to address them.”

In reference to a U.S. interest rate hike, “It is applied not only to Korea but to other countries,” Dick said, implying little impact on Korea’s credit rating.

What holds the key to making a change in Korea’s credit rating is a significant slowdown in the growth of the Chinese economy. Moody’s expects that China will be a second domestic market for Korea. So, the crediting rating agency sees that the slowdown will put Korean export companies on special alert.

Earlier, Moody’s evaluated that Korea is vulnerable to a slowdown in the economic growth of newly emerging markets, including China, as 60 percent of Korea’s exports concentrate on newly emerging markets, and 50 percent of its GDP is contingent on such markets.

Copyright © BusinessKorea. Prohibited from unauthorized reproduction and redistribution