South Korea’s credit rating upgraded to all-time high of Aa2 by Moody’s

By Park Sae-jin Posted : December 21, 2015, 08:09 Updated : December 21, 2015, 08:09

[AJU NEWS CORP DB]



International ratings agency Moody's Investors Service has raised South Korea's credit to Aa2, the highest ever for the country, saying South Korea’s economic and fiscal strength compare strongly to its peers and would likely remain strong even amid weak external demand

"Korea's very high institutional strength will support continued implementation of structural reforms, further promoting economic and fiscal resilience," Moody's said in a statement issued on Saturday.

Moody’s raised South Korea's issuer and bond ratings to Aa2 from Aa3 and changed the outlook to stable from positive.

South Korea’s economic growth and government finances are more stable and predictable than China's (Aa3 stable), and stronger than for Aa-rated euro area sovereigns, Moody’s said.

“Moody's notes that challenges exist to Korea's export-dependent growth model, mainly in the form of China's economic rebalancing and the weaker outlook for global trade. Measures to counter the recent increase in Korean household debt levels to more than 80% of GDP could in Moody's view also weigh on growth in 2016. And over the long term, rapid aging -- Korea's working-age population will peak in 2016 -- alongside an immature social security framework poses risks to growth and carries fiscal costs.

“However, even based on Moody's comparatively conservative forecasts, which project only a gradual return to trend growth of around 3% over the next five years, Korea will grow faster than the IMF-estimated average for advanced economies. Per-capita incomes will also continue to converge with those of advanced economies in Europe,” Moody’s said.

It added that “Korea's very high degree of institutional strength is supported by a bureaucratic system that is both consistent in policy formulation and effective in its implementation. Korea has a strong track record of successfully implementing reforms, such as investment policies following the Asian Financial Crisis of 1997/98. Korea's scores for government effectiveness in the Worldwide Governance Indicators have been on an upward trend since the mid-2000s.

Moody’s also noted that the current administration has started to implement a comprehensive reform program, encompassing the public sector, labor market, financial system and education sector. “Plans to reduce labor market duality and the regulatory burden in goods and services sectors, increase employment opportunities for the youth and female labor force participation, together with the further advancement of bilateral and multilateral free-trade agreements will help to maintain competitiveness,” it added.

Moody's raised its outlook on South Korea in April and Standard and Poor's and Fitch announced similar upgrades earlier this year. (Full Story)

By Alex Lee

 
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