Korea’s sovereign credit rating was raised a notch to “Aa3” on Monday by Moody’s Investors Service.
Aa3 is the highest credit rating ever received by S. Korea from Moody’s and is a notch above the one given to the nation just before the 1997 Asian Financial Crisis. It is the fourth-highest credit rating among the 21 grades used by the credit rating agency. It is the same rating given to China, Japan, Taiwan, Chile and Saudi Arabia.
But S. Korea’s rating remains three notches below the Aaa rating given to the US, Canada, Germany, Britain and most other western European nations. It is higher than Spain’s Baa3 or South Africa’s A3, Russia’s Baa1, Italy’s Baa2 or Greece’s C, but lower than Hong Kong’s Aa1 or Kuwait’s As2.
“Korea’s strong fiscal fundamentals enable a relatively large degree of policy space to cope with contingent domestic risks and external shocks,” said Moody’s statement accompanying the upgrade. “Its government finance metrics are very well placed among all Aa-rated peers.
“The Korean economy has demonstrated resilience to external shocks. It avoided a recession because of the global financial crisis in 2009 and rebounded strongly in 2010.”
Another reason cited by Moody’s for the upgrade is the fact that Korea has the lowest ratio of debt to GDP among OECD member nations and the diminished risk of a sudden collapse in North Korea.
“It is rare for a country to get its credit rating raised at a time when Japan, France and Italy had their ratings slashed,” said Eun Sung-soo of the Ministry of Strategy and Finance. “This suggests the world recognizes that Korea’s economic fundamentals have risen to the level of the world’s advanced economies.”
The rating upgrade could save the Korean government and businesses $400 million in borrowing costs. It also offers a degree of security at a time when Japan may lower the amount of a currency swap agreement.