Global credit rating agency Fitch Ratings has reaffirmed South Korea's sovereign rating at AA- with a stable outlook. The decision underscores the country's robust external finances and dynamic export sector. However, rising government debt and aging population challenges pose medium-term risks.
On January 30, global credit appraiser Fitch Ratings reaffirmed South Korea's sovereign rating at "AA-" with a stable outlook. This is the fourth-highest level on the agency's sovereign ratings table, maintained since September 2012 when it was upgraded one notch from A+.
"We expect Korea's buffers and macroeconomic policy flexibility to be sufficient to manage risks in the near term, but rising government debt could over time lead to a weakening of the credit portfolio," the agency said in its report. It highlighted South Korea's robust external finances, dynamic export sector, and stable macroeconomic performance. "Korea's robust external finances are underpinned by persistent current account surpluses, reflecting its positive savings-investment balance," the report added.
Fitch projected the country's GDP to expand 2 percent this year, driven mainly by strong private and government consumption. This aligns broadly with forecasts from the OECD at 2.1 percent and the Bank of Korea at 1.8 percent. However, it noted medium-term growth headwinds from structural challenges like an aging population leading to a declining working-age population, revising its potential GDP growth estimate down to 1.9 percent from 2.1 percent.
The agency also forecasted government debt to rise to 50.6 percent of GDP in 2026 and increase gradually over the medium term. "A continued increase in government debt, without an offsetting increase in potential GDP growth from higher fiscal investment, could add to rating pressures," it warned. Geopolitical risks related to North Korea remain, despite the new administration's push for greater dialogue.
