Global ratings agency Fitch has decided to keep Korea’s long-term sovereign credit rating at "AA-," the company's fourth-highest level, with a stable outlook, citing the strength of the country's economic fundamentals despite the ongoing political volatility caused by President Yoon Suk Yeol’s abrupt martial law declaration.
“A recent sharp rise in political uncertainty is likely to persist in the coming months and while we do not expect it to materially and durably undermine Korea's institutions, governance or economy, this remains a risk if the crisis persists for an extended period,” Fitch said in a statement.
Asia’s fourth-largest economy has retained the “AA-“ rating since September 2012. However, the government has been working to avoid sovereign credit rating downgrades by addressing concerns investors may have following Yoon’s imposition of martial law on Dec. 3, which led to a sharp currency devaluation and stock market fluctuations.
“While Korea has sufficient external finance and fiscal buffers to manage a period of high political volatility, sustained political gridlock could erode policymaking effectiveness, economic outcomes, and fiscal management over time,” the agency said.
Fitch also lowered its outlook for Korea's economic growth in 2025 from the previous 2.0 percent to 1.7 percent, citing that “political uncertainty has dampened confidence, and recent data has been subdued.”
This aligns with the Bank of Korea’s decision to revise down its forecast to a range of 1.6 to 1.7 percent from the 1.9 percent estimated in July.
The ratings firm said it expected the country’s exports to moderate due to a 10 percent global tariff imposed by the new US administration, warning that downside risks are high given uncertainty over the US tariffs.
With sluggish exports and domestic demand dealing a blow to the country’s economy, a downgrade of its sovereign credit rating could further diminish its ability to access credit, heightening the risk of financial instability.
In January, acting President Choi Sang-mok held a meeting with high-ranking officials from global ratings firms Fitch, S&P and Moody’s to brief them on the political situation and the government’s responsive measures.
According to the Finance Ministry, the ratings firms indicated that the political uncertainties would have a limited impact on the Korean economy but warned that potential repercussions for foreign investment and corporate decision-making could not be dismissed if the situation were to persist.
By Park Han-na (hnpark@heraldcorp.com)
