Moody’s has maintained its credit rating for South Korea at “Aa2” despite the recent improvement in inter-Korean relations.
The credit rating agency acknowledged that geopolitical risks on the Korean Peninsula have been reduced to some extent through the recent Inter-Korean and U.S.-North Korea summits. Yet it noted that uncertainties still remain due to the lack of specific measures for denuclearization of the North.
Moody’s also maintained the outlook for Korea at “Stable.”
The international credit rating agency explained that the South Korean economy is currently maintaining a high level of resilience against global impacts. “Although spreading trade protectionism is a potential risk, the South Korean economy’s reliance on exports will keep falling based on positive factors such as export diversification, sufficient competitiveness, and some fiscal room,” it said, adding, “A decrease in global liquidity is likely to have no direct impact on the South Korean economy given its financial soundness.”
It went on to say that U.S.-North Korea relations are still unpredictable amid the lack of specific measures for the denuclearization and a lasting peace. “Although the likelihood of a military collision is lower than before, uncertainties still remain regarding the scope and pace of the denuclearization, the U.S. Armed Forces in South Korea, the possibility of collapse of the North Korean regime, ” it pointed out.
Moody’s also remarked that South Korea is maintaining a high level of economic and financial soundness by means of a continuous fiscal surplus, moderate national and foreign debts, and excellent debt repayment capabilities. “The repayment capabilities of South Korea are attributable to the relatively small size of its debt and the Bank of Korea’s inflation management, which have led to low and stable domestic interest rates,” it explained.
Moody’s mentioned, as factors that can lead to an upward credit rating adjustment in the future, a decrease in war risk and an economic reform for a higher potential growth rate and against its fast-aging population. As opposite factors, the agency mentioned geopolitical risks such as a military clash and a slower pace of industrial restructuring.