Moody's Investors Service said on Wednesday that South Korea has recovered much from the global financial crisis but still needed to improve the health of its financial system and fiscal soundness for a rating upgrade. "We still have cautious concern on the banking sector and the economic environment of advanced countries.
We will need to see more clear signs of stabilisation before taking any positive rating action on Korea," Thomas Byrne, a senior vice-president at Moody's, told reporters. As South Korea is one of the most heavily export-dependent economies, the global economic recovery, expected to come at a gradual pace, would be critical for Asia's fourth-largest economy to grow at its full speed of 4 percent to 5 percent, he said.
He also said that the country appeared to have a room to maintain an accommodative fiscal policy given the limited inflationary pressure, but warned of the risk of keeping rates low too long on asset prices. "We don't see strong inflation pressure coming soon, and Korea has enough room for a fiscal deficit for some time," he said. The North Korean factor has a "medium" level of weight on South Korea's rating, which could be raised despite geopolitical tensions if the economy showed more strength, with the government and financial institutions contributing to sustainable growth, he said.
Moody's has kept South Korea's government long-term foreign-currency and local-currency ratings at A2 since July 2007. The current outlook is "stable". Early in September, Fitch Ratings raised the country's ratings outlook to "positive" from "stable", pointing to improved foreign currency liquidity conditions and the economy's resilience.