Hello, I’m back with one of the hottest issues these days! You guys probably know what it is. Yes! Korea’s sovereign credit rating (SCR) has been remarkably raised! The rating was conducted by Moody’s which is one of the world’s renowned credit rating agencies along with S&P and Fitch Ratings. Korea’s SCR by Moody’s has increased to Aa3 which is identical to that of China and Japan. Moreover, the Fitch Ratings has also upgraded Korea’s SCR to AA- which is even outranking that of China and Japan. In this post, I would like to introduce the reasons why Korea’s rating has improved a lot.
Most of the developed countries’ credit ratings are in the “A range”. However, due to the aftereffect of global financial crisis along with the on-going Euro-zone crisis, the credit ratings of many developed countries are being halted or even degraded. Amid this sluggish trend all around the world, Korea stands out as the only one country with the upgraded sovereign credit rating.
Then, what kinds of benefits would this upgraded credit rating bring to Korea? From now on, Korea will be able to borrow money from other countries and international financial institutions at lower costs. This will help domestic businesses trading with foreign banks and agencies. As well as the lower costs of borrowing money, many expect that a significant amount of foreign capital is expected to flow into Korean financial markets, especially for stocks and other securities.
Moody’s Investors Service has made it clear that there are several exceptional reasons for raising Korea’s sovereign credit rating. The reasons are as follows. First, Korea has a strong recuperative power dealing with small and big economic shocks. What does this mean? It’s about Korea’s strong fiscal fundamentals which are capable of coping with both the external shocks and domestic risks through various economic policies.
“It is a big achievement for the current government amid the ongoing financial challenges in the global economy”, said Eun Sung-soo, the director-general of the international financial bureau at the Ministry of Strategy and Finance.
How could Korea get a higher credit rating than China and Japan? The reason behind is ‘the level of national liabilities’. “When comparing Korea and Japan in regard to each government’s size of debt proportionate to the overall GDP, there is an evident gap showing that Korea is outstanding”, the director of Fitch Ratings said. Yes, indeed, Korea has shown a significant improvement in its credit rating. However, there is still a long way for Korea to go through, as a country with such an outstanding credit rating. What message does this leave? That is, Korean government authorities are to keep working hard to carefully analyze the credit rating report, to find out any possible challenges, and to design policy measures suitable for dealing with those possible risks. Then, we are to expect Korea’s another leap in its credit rating.