South Korean Finance Minister Yoo Il-ho meets with an official of S&P in Washington in April 15, 2016.
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Global credit ratings agency Standard & Poor’s (S&P) upgraded South Korea’s sovereign credit rating, citing relatively sound economic growth and flexible fiscal and monetary policies.
S&P raised South Korea to AA, its third-highest rating, saying the country has a prosperous economy and has reined in short-term external bank debt and trade balances.
The agency raised the sovereign rating of South Korea to “AA” from “AA-‘”.
“It is a highly surprising decision by S&P, considering that the agency has been downgrading sovereign ratings of major economies these days”, said the Finance Ministry in a statement.
The decision may bolster investors’ confidence in South Korea’s prospects at a time when a global economic recovery remains uncertain and credit ratings or outlooks for major countries like Australia, the United Kingdom and Japan have been lowered.
S&P added the South Korean economy remains “well-diversified” and is not dependent on one industry or export market.
“A recovery in the USA economy should provide support for Korean exports, partly offsetting weaker exports to China”, it said.
In December past year, Moody’s revised up South Korea’s sovereign rating to Aa2, the equivalent of S&P’s AA rating.
The won was at 1,110.90 per dollar as of 1:30 p.m.in Seoul on Monday, after sliding as much as 0.6 percent.
“Korea’s monetary policy regime provides strong support for resilient and sustainable economic growth”, S&P said.
It noted the chief weaknesses in South Korea’s credit fundamentals remain its contingent liabilities and geopolitical risks sparked by North Korea, which has persistently engaged in provocations like missile launches in recent months.
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The ratings agency also expressed concerns about Korea’s future economic situation but said the negative factors that Korea faces would have limited impacts on the agency’s ratings at least for two years. This will contribute to market stability, and lead to higher ratings for South Korea’s financial companies and public firms, helping lower funding costs, the ministry said. As for the stable outlook, the agency said that it could maintain Korea’s credit rating for the next two years unless geopolitical tensions on the Korean peninsula mount to a risky level.
