Seoul: Global credit appraiser Fitch Ratings announced on Friday that it has reaffirmed South Korea's sovereign credit rating at "AA-" with a stable outlook. This rating remains the fourth-highest on Fitch's sovereign ratings table, a position South Korea has maintained since September 2012 when it was upgraded from A+.
According to Yonhap News Agency, Fitch's latest report highlights that South Korea's macroeconomic policy flexibility and financial buffers are expected to effectively manage short-term risks. However, the report also notes that the country's rising government debt could potentially weaken its credit portfolio in the long term. The agency pointed to South Korea's strong external finances, a dynamic export sector, and stable macroeconomic performance as key factors supporting the current rating.
The report underscores South Korea's persistent current account surpluses, which are a result of its positive savings-investment balance. Furthermore, Fitch projects South Korea's GDP to grow by 2 percent this year, primarily driven by robust private and government consumption. This forecast aligns closely with projections by other major financial institutions, such as the OECD's 2.1 percent and the Bank of Korea's 1.8 percent estimates.
Despite these positive indicators, Fitch also identified medium-term challenges, including structural issues stemming from an aging population that could lead to a declining working-age demographic. As a result, the agency has adjusted its estimate of South Korea's potential GDP growth rate down to 1.9 percent from a previous 2.1 percent.
Additionally, Fitch forecasts that government debt will rise to 50.6 percent of GDP by 2026, with a gradual increase expected over the medium term. The report warns that a continued rise in government debt, without a corresponding increase in potential GDP growth from higher fiscal investments, could exert pressure on the country's credit rating.
The agency also highlighted that geopolitical risks related to North Korea persist, despite efforts by South Korea's new administration to foster dialogue and advance exchanges with the North.