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In the aftermath of a new coronavirus infection (Corona 19) last year, half of the developed countries also had their national credit ratings and forecasts downgraded, and the decisive factor in deciding whether or not their credit ratings declined was the’speed of growing national debt’. In the countries where government debt increased sharply due to a large amount of finances, credit ratings were unavoidably declined.
Even countries such as Australia, which have a relatively small amount of debt, were unable to avoid a decline in creditworthiness due to the rapid increase in debt. This is why there is growing criticism that Korea should not be relieved that the size of national debt is relatively low. Moreover, there are concerns that the government’s credit rating downgrade may become a reality this year as South Korea has announced an additional issuance of tens of trillion won in deficit government bonds for the 4th and 5th emergency disaster support payments this year.
Developed countries with a lot of debt increase, sovereign credit also declines.
According to the Ministry of Strategy and Finance on the 16th, last year alone, 112 countries had lowered their national credit ratings and forecasts by three major international rating agencies, including Moody’s, Standard & Poor’s (S&P), and Fitch.
Many developed countries have also been unable to avoid falling credit. 20 advanced countries based on the International Monetary Fund (IMF) (US, UK, Japan, Germany, France, Korea, Finland, Spain, Belgium, Czech Republic, Netherlands, Switzerland, Italy, Sweden, Norway, Denmark, Australia, Canada, Singapore, New Zealand ), 10 countries have lowered their credit rating or outlook.
Three countries, including the UK, Canada, and Italy, have lowered their national credit ratings. All of these countries have had their credit rating downgraded by Fitch, and the UK further downgraded Moody’s. As a result, Canada descended from AAA, the highest credit rating, to AA+. Italy has been adjusted from BBB to BBB-, which is the stage just before speculation grade. In the case of Peach, the British credit rating became AA-, the same as Korea, and Moody’s became Aa3, which is one level below Korea.
Seven countries, including the US, Australia, Japan, Belgium, France, Spain, and Finland, have lowered their outlook for sovereign ratings. For example, in July last year, Fitch lowered the US credit outlook from’stable’ to’negative’. The decline in the credit outlook is a warning that “there is a high risk of a credit rating downgrade.”
At this time, 20 countries saw an increase in the ratio of general government debt (central government + local government + non-profit public institution debt to gross domestic product, D2), which was the first place Japan (28.2% points) and second place Spain (27.6% points), 3 Ranked Italy (27.0% points), 4th place Canada (26.0% points), 5th place UK (22.7% points), 6th place United States (22.5% points), 7th place France (20.6% points), 8th place Belgium (18.9%) Point), etc. All are countries whose credit ratings or outlook have been downgraded. Australia (14.1 percentage points), the remaining downward revision country, ranked 10th, and Finland (8.9 percentage points) ranked 13th. This means that the countries with the highest growth in debt debt and the countries with a decline in national credit are almost identical.
Kim Sang-bong, professor of economics at Hansung University, said, “The rate of increase in government debt is one of the most important factors of international credit rating agencies, and it shows well that this is valid even in the corona 19 crisis.
“Korea is not a safe zone for credit rating decline”
In fact, when international credit rating agencies lowered their credit ratings and outlooks last year, the deteriorating fiscal soundness was the main reason. Fitch lowered Canada’s credit rating in June last year and said, “It reflects concerns that Canada’s fiscal deficit and government debt will increase due to the Corona 19 response.” The company explained that when it lowered its credit rating in the UK in March last year, it “reflected the worsening of UK fiscal soundness.”
Countries with poor credit ratings and prospects had large government debt ratios. Most of them exceeded 100%. However, in Australia, despite the relatively low government debt ratio of 60.4% last year, S&P lowered its credit outlook to’negative’ in April of last year. At the time, S&P evaluated, “As the Australian government decided to spend 16.4% of its GDP on responding to Corona 19, there is a high possibility that the government’s finances will deteriorate.” This shows that even if the government debt is low, it is not a safe zone for falling credit ratings if the rate of increase is fast.
In Korea, the government debt ratio increased by 6.5 percentage points, from 41.9% in 2019 to 48.4% last year. Although the increase was larger than before, it was relatively good compared to other countries. The increase in debt was ranked 17th out of 20 developed countries. Last year’s national credit rating and outlook remained unchanged.
The problem is this year. According to the IMF, Korea’s government debt ratio is expected to be 52.2% at the end of this year. This is an increase of 3.8 percentage points from last year. This is the fourth highest level out of 20 countries. The governments of most advanced countries have announced that fiscal soundness will be strengthened this year, but Korea is planning to continue to expand fiscal growth. In addition, the government and the ruling party decided to provide the 4th emergency disaster support fund by arranging an additional budget for correction within the first quarter of this year. It is predicted that the scale will be around 20 to 30 trillion won. This intact leads to an increase in government debt. This means that the government debt ratio could rise far above 52.2%. Because of this, there is growing concern that Korea may also experience a state of credit decline.
The decline in the national credit rating negatively affects the economy in several ways. There is a high likelihood that the government bond yield, as well as the financing rate of companies will rise, the value of the local currency will fall, and the foreign investment will drain. In the UK, for example, immediately after the national credit rating was lowered in March last year, the value of the pound fell by about 1% and the stock price fell sharply. The credit ratings of British banks such as HSBC and Santander also fell, causing their stock prices to decline.
Hong Seong-il, head of the economic policy team at the Korea Economic Research Institute, pointed out, “The government and the ruling party are pushing for a radical fiscal expansion policy because of the relatively small amount of government debt. He said, “Even if you spend your finances, you should invest in places that lead to productivity improvement, such as fostering new industries and expanding national infrastructure,” he said. “Now, we are focusing only on giving out cash for election votes, so the policy effect is low and the burden of future generations is increasing.” .
Reporter Seo Min-joon [email protected]