Seoul, South Korea – Fitch Ratings has issued a warning that South Korea’s credit rating could face downward pressure if the political instability sparked by President Yoon Suk-yeol’s recent declaration of a state of emergency persists. While the global credit rating agency has affirmed the country’s current rating, it has underscored the heightened risks associated with prolonged political turmoil.
In a report titled “South Korea’s Credit Fundamentals Remain Resilient Amid Political Instability,” Fitch noted that the swift reversal of the emergency declaration has not entirely dispelled concerns about political risks in the coming months. The agency cautioned that a protracted political crisis or deepening divisions could undermine policymaking effectiveness, economic outcomes, and fiscal management.
Fitch highlighted that South Korea’s economy is already grappling with external challenges, including the impact of US protectionism and a domestic property market downturn. The added layer of political uncertainty could exacerbate these risks and weigh on the country’s economic growth forecast, which Fitch has lowered to 2.0% for 2025.
Despite these concerns, Fitch maintained South Korea’s AA- rating, citing the country’s strong institutional framework and historical resilience to political shocks. The agency argued that the issues raised by the emergency declaration are likely to be addressed through constitutional processes.
However, Fitch did acknowledge that the very fact of the emergency declaration could erode investor confidence in South Korea’s political stability. Prolonged political uncertainty, the agency warned, could undermine household and business confidence and strain public finances.
Looking ahead, Fitch expressed concerns about the potential long-term implications of a Democratic Party victory in future elections. The agency suggested that a Democratic-led government might pursue more expansionary fiscal policies, which could put upward pressure on government debt levels and, consequently, the country’s credit rating.
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