[Highlights of S&P’s Rating Action]

Standard & Poor’s (S&P) Global Ratings reaffirmed Korea’s credit rating of AA with a stable outlook. It projected that while the Korean economy may experience a moderate slowdown over the next three to five years, it will maintain a higher average growth rate than most high-income economies. It also expected that the government’s fiscal deficit will “remain modest” over the next three to four years.

S&P specifically projected that Korea’s real GDP growth would slow to 1.2% this year, primarily due to deteriorating global trade conditions, but rebound to 2.0% in the following year; the Korean economy is anticipated to grow at an annual pace of approximately 2% from 2025 to 2028, with per capita GDP expected to surpass $41,000 by 2028.

S&P also noted that it continues to see “Korea’s institutions and policy environment to be key credit supports”; while the unexpected declaration of martial law somewhat undermined confidence in political stability, the swift reversal of the declaration and political institutions’ prompt response helped mitigate the extent of the damage. S&P viewed that the adherence to established rules and processes in the series of events that led to the upcoming presidential election contributed to preventing significant disruption to social and economic stability, stating “Over the period, policy institutions were active in ensuring that the fallout of the political uncertainties did not seriously hurt the economy and financial system”. However, it pointed out that if the recent increased political divisions persist, it “could weaken future governments’ ability to rally popular support for policy changes”.

S&P projected that the general government deficit will narrow slightly to 0.8% of GDP in 2025, compared to 1.0% in 2024, supported by favorable revenue collections. However, the impact of U.S. tariffs on exports and a global economic slowdown could place downward pressure on revenue growth, posing a potential burden on the government’s fiscal consolidation efforts.

S&P further assessed that “Korea also faces limited contingent liabilities from the financial sector.” However, the growing debt of nonfinancial public enterprises (NFPE) in recent years poses a constraint on the country’s fiscal position. In addition, it viewed the potential cost of reunification in the event of the North Korean regime collapse as a highly uncertain and significantly burdensome contingent liability, identifying it as the greatest vulnerability to Korea’s credit rating.

S&P stated that “Korea’s strong external fundamentals are an anchor for the sovereign ratings” such as “a favorable net international investment position and a long record of external surpluses”; the current account surplus is projected to approach 5% of GDP over the next three years. Furthermore, it viewed that Korea’s floating exchange rate system, along with the depth of its actively traded foreign exchange market, “affords the economy a strong external buffer”.

[Implications and Future Plans]

S&P has reiterated its strong confidence in the stability of the Korean economy by affirming Korea’s credit rating at AA with a stable outlook. In particular, amid heightened domestic and external uncertainties – such as the political situation in the country and the evolving trade environment resulting from U.S. tariff policies – this decision is anticipated to exert a positive influence on Korea’s standing in international markets.

Prior to this rating announcement, the government made every effort to safeguard the country’s international credibility. It held a meeting in March between Deputy Prime Minister Choi Sang-mok and the S&P annual consultation team while the relevant ministries systemically responded to annual consultation through the government-wide Joint Response Council on Sovereign Credit Ratings (chaired by First Vice Minister of Economy and Finance). Going forward, the government plans to continue maintaining close communication with global credit rating agencies, including S&P, Moody’s, and Fitch, by actively providing detailed explanations of Korea’s economic situation and policy direction, thereby striving to uphold the nation’s international credibility.

More details about the Rating Action are available on the following:

https://disclosure.spglobal.com/ratings/en/regulatory/article/-/view/type/HTML/id/3352800

Please refer to the attached files.