Moody's Investors Service has affirmed South Korea's sovereign credit rating at Aa2, while raising its 2025 economic growth forecast to 1.8%, up 0.2 percentage points from its previous projection.
In its credit outlook report released Monday, the rating agency maintained both the Aa2 rating and its "stable" outlook. Aa2 is Moody's third-highest rating, behind only Aaa and Aa1.
"The rating is underpinned by Korea's very high level of economic diversification and competitiveness, as well as sustained institutional capacity to respond to key challenges," Moody's said.
The 1.8% growth forecast matches the Bank of Korea's projection but falls short of the government's 2.0% estimate. Moody's attributed the improved outlook to expanding global artificial intelligence demand driving semiconductor exports and recovering capital investment, following Korea's sluggish 1.0% growth in 2024.
However, the agency warned that Korea's debt-to-GDP ratio could exceed 60% by 2030. Moody's cited aging-related mandatory spending on pensions and healthcare, defense and national security commitments, and strategic obligations under U.S.-Korea investment agreements as key drivers of rising national debt.
The agency also flagged risks from state-owned enterprises. Total debt of non-financial public sector entities reached more than 17% of GDP in 2024, up from 15% in 2021, which "will further pressure overall fiscal soundness," Moody's said.
Moody's emphasized the need for fiscal reform to mitigate debt risks. "The fiscal stance has been expansionary over the past year and is expected to remain so at least until 2028," the agency noted. "The debt burden has risen from 35% in 2019 to approximately 50% in 2025, converging from a very strong initial position toward the advanced-economy average."