REPUBLIC OF KOREA - 2020
|Report ID||605306||Popularity||129 views 5 downloads|
|Report Date||Nov 2020||Product|
|Company / Issuer||South Korea||Sector||Country|
MARC has affirmed the Republic of Korea’s (South Korea) foreign currency sovereign rating of AAA with a stable outlook, based on its national rating scale. The AAA rating reflects several credit strengths, chief among which are economic resilience, prudent fiscal management and a strong external position. For example, South Korea has continued to generate current account surpluses, even in 2019 despite a difficult trade environment. Consequently, it has the ninth-largest official foreign reserves in the world. It comes as no surprise that it is a net international creditor with its net international investment position standing above 30.0% of GDP.
The disruptive COVID-19 pandemic, a key immediate credit challenge, has resulted in increased economic and financial risks. Aggressive fiscal spending has, however, helped to significantly mitigate the impact of the pandemic. In 2020, gross domestic product is expected to contract, although by low single digits in percentage terms.
The stable outlook reflects our expectation that the country’s substantial fiscal and external buffers remain intact, as well as continued prudent and pragmatic economic, monetary and fiscal management amid the COVID-19 pandemic over the next 12 to 18 months.
Going forward, South Korea’s credit profile will improve if there is evidence that the government’s fiscal and monetary policies continue to be successful in mitigating the impact of the COVID-19 pandemic. It will, on the other hand, be impaired if: a) easing fiscal and monetary policies prove ineffective in mitigating evolving economic and financial risks; b) there are serious resurgences of the viral pandemic; and c) geopolitical tensions on the Korean Peninsula further escalate.
Major Rating Factors
• Resilient economy;
• Prudent fiscal management; and
• Strong external position.
• COVID-19 pandemic;
• Geopolitical risk; and
• Ageing population.