Standard & Poor's on Friday became the third major credit ratings firm to raise Korea's sovereign credit rating in recent weeks. S&P upgraded Korea from "A" to "A+," the fifth-highest in the agency's 21-level grading system.
Earlier Moody's and Fitch, the other two major rating firms, also boosted Korea's sovereign credit rating by a notch. Among countries with an A-rating or better, Korea is the only country in the world whose rating has been raised by all three major rating agencies since 2011.
But the S&P rating is a notch lower than those from Moody's and Fitch and also below China's and Japan's. Fitch rates Korea higher than China and Japan, and Moody's rates all three the same.
S&P cited the reduced risk from North Korea as the biggest reason for its rating upgrade. The agency felt that the hereditary transfer of power in the North is progressing smoothly and the risk of a sudden implosion of the regime or a military clash has shrunk.
Another factor was Korea's sound fiscal condition compared to advanced countries, while its relatively high base interest rate gives economic policymakers more ammunition to undertake fiscal stimulus measures and the country's external debt status is improving.
"We heard from S&P that our economic situation is stable due to our low external debt load and continued current account surplus," said an official at the Ministry of Strategy and Finance. S&P said it could raise Korea's credit rating further if it manages to boost per-capita GNI through strong economic growth or if the banking system is strengthened by lowering its short-term debt load further.
The ratings upgrades will make it easier for Korean businesses and banks to raise money abroad. But an excessive influx of foreign capital into Korea could lead to a strengthening of the won, thereby making Korean exports more expensive and weakening their competitiveness.