Fitch, an international credit rating agency, maintains its Korean national credit rating of "AA-".

"Reflecting strong external health..." It is expected to grow in the 3% range this year thanks to consumption recovery.

Fitch, an international credit rating agency, announced that Korea's national credit rating will be AA- and its rating outlook will remain stable. 

According to the Ministry of Strategy and Finance on the 28th, Fitch said, "Korea's current credit rating is a balanced reflection of the strengths of the Korean economy, geopolitical tensions related to North Korea, low governance index (World Bank), and structural challenges caused by aging." 

"From a credit rating perspective, fiscal capacity is at a level that can handle the increase in national debt in the short term," he said adding, "The continued rise in the national debt ratio could serve as a pressure factor for credit ratings from a mid-term perspective."

Fitch predicted GDP growth at 3% this year thanks to a recovery in consumption and strong exports. Consumption recovery is expected to continue despite risks such as strengthening social distancing and omicron mutations. 

In addition, exports will still remain solid, but the strong trend will weaken somewhat due to China's slowing growth. In addition, the government's efforts to improve productivity through the Korean version of the New Deal are expected to ease pressure caused by changes in the demographic structure in the long run.

Regarding the finances, he predicted, "Even considering this year's supplementary budget (draft) submitted by the government, the fiscal balance will improve compared to last year, and the increase in national debt will be similar to that of similar-grade countries."

However, he pointed out that strengthening the government's active fiscal expenditure and fiscal deficit could be a factor that hinders credit ratings in the mid-term.

Regarding the fiscal rules, Fitch predicted, "It will contribute to fiscal stabilization, but it is still under discussion by the National Assembly, and presidential candidates are also supporting continued financial support for economic recovery, so fiscal stabilization will be gentle after the presidential election."

As for prices, the Bank of Korea is expected to raise its key interest rate by 25bp twice this year to manage financial risks and inflation rates. Last year's high inflation rate appears to be a temporary phenomenon, and it is expected to gradually ease this year and next year.

In addition, Fitch said household debt soared last year due to rising housing prices, but risks are well contained considering household assets and repayment capabilities.

In addition, tensions with North Korea are on the rise despite South Korea's efforts to resume dialogue and declare an end to the war, and denuclearization negotiations have not made much progress, and solid external soundness, including net foreign creditor status, current surplus, and sufficient foreign exchange reserves, will serve as a buffer.

The Ministry of Economy and Finance said, "Pitch's positive view of the solid basic physical strength and strong resilience shown by the Korean economy over the past two years is still valid," adding, "We also confirmed that the rating agency emphasizes securing financial capacity and paying attention to the government's fiscal stabilization efforts."

"We will continue to make every effort to enhance our external credibility by actively sharing the resilience and policy directions of our economy while communicating closely with international credit rating agencies such as Peach," he said.

[Source] Korean policy briefing www.Korea.kr