The Tamesis
December 18, 2024
Seoul – The political turmoil surrounding President Yoon Seok-yeol has begun to subside since the National Assembly passed a motion to impeach the president on Saturday, but uncertainty about the country’s leadership continues to weigh on the country’s sovereign credit rating.
Shortly after Yin's fiasco when he declared martial law earlier this month, the three major global credit rating agencies – Moody's Ratings, Fitch Ratings and S&P Global Ratings – warned that prolonged political instability could negatively impact the country's credit rating Impact, and credit rating is an indicator of a country's capabilities and development level.
A top Moody's executive said that although lawmakers' move to oust the president prevented further escalation of the crisis, political uncertainty will remain a burden on the country.
Anushka Shah, vice president and senior credit officer at Moody's Ratings, told The Korea Press: “After parliament voted to impeach President Yoon, South Korea is likely to face continued political uncertainty until the Constitutional Court decides whether to Remove him from office or restore him to power.
Moody's has maintained the country's sovereign credit rating at Aa2, the third-highest level since December 2015.
“We recognize that strong rule of law continues to underpin rapid decision-making and that all other institutional functions – including monetary and fiscal policy – remain in place,” Shah said.
“However, delays or complications before the judiciary make a decision could lead to prolonged disruptions in economic activity, including shutdowns, which would have a negative impact on creditworthiness.”
South Korea also maintains a relatively high sovereign credit ranking among the other two agencies. Fitch has maintained Korea's rating at AA-, the fourth-highest level, since September 2012, and AA-, the third-highest level, by Standard & Poor's since 2016.
But as Shah mentioned, the country's unstable politics could lead to a downgrade.
Moody's, for example, downgraded France's debt to Aa3 from Aa2, three notches below Saturday's top rating, and said the country's public finances will be “significantly weakened” in the coming years as “political fragmentation is more likely to hinder Meaningful fiscal consolidation” through the statement.
Standard & Poor's already downgraded France by a notch in June, and Fitch may follow suit in the coming weeks after warning in October.
Aware of these concerns, Finance Minister Choi Sang-mok has held a round of meetings with global credit assessors and sent them letters to ensure that the economic impact of the recent series of events will be limited.
Experts say the recent political instability could provide grounds for global rating agencies to downgrade the country's rating, which has weakened due to rising public debt in recent years.
“South Korea's credit rating received a boost in the 2010s, when local authorities went to great lengths to improve it. But since then, the country's sovereign debt has risen sharply, putting its chances of maintaining its sovereign rating at risk.
“Sovereign ratings are a combination of quantitative and qualitative factors. If this is to happen, credit agencies must justify a downgrade, and the current instability provides a quantitative justification.
