Moody’s Investors Service reaffirmed South Korea’s sovereign debt rating at Aa2 with a stable outlook amid eased geopolitical risks following North Korea’s show of commitment to denuclearization.

Moody’s has kept South Korea’s rating at the third highest rank in its scale since December 2015.

“South Korea`s large and diversified economy will continue to demonstrate resilience to global shocks and geopolitical risk owing to historical tensions versus North Korea has ebbed. South Korea`s public finances will remain sound and are further enhanced by ongoing implementation of structural reforms,” said the credit rating agency in its report released on Monday.

On Monday, the Kospi fell 1.16 percent to end the day at 2,376.24, and the Korean currency closed at 1,104.8 won against the U.S. dollar, down 7.1 won from the previous session. The benchmark three-year government bond yield closed 0.8 percentage point down at 2.178 percent.

The agency said it expects Korea to continue economic growth backed by “still favorable outlook for external demand, accommodative fiscal policies, and robust consumption on the back of steady income growth.” Korea’s gross domestic product accelerated 3.1 percent in 2017, the fastest among G20 economies. It also expected the Korean economy to stay resilient to external shocks such as rising trade protectionism as “South Korean economy`s broad diversification, high level of competitiveness, and fiscal space mitigates its export dependency.”

The agency recognized the North Korea’s latest denuclearization movements but said tensions on the Korean peninsula “have ebbed but still persist” as neither of agreements that North Korea signed with South Korea and the United States includes “a well-defined path towards achieving” the shared goals of bringing permanent peace, leaving the relations still “unpredictable.”

It said “even if the risk of armed conflict has ebbed more recently, considerable uncertainties related to the peace process persist,” such as “extent and pace of denuclearization or disarmament of North Korea, and the role of the US in providing regional security guarantees.”

Apart from the geopolitical risks, the agency indicated that the “control of corruption appears to be weaker than in many other highly-rated sovereigns, reflecting in part perceptions of the disproportionate influence of the country`s chaebol, or large conglomerates, on the economy and government,” although the country’s “fiscal, monetary and regulatory institutions are very strong.”

Korea’s sovereign credit is rated third highest of AA by Standard & Poor’s and the fourth highest of AA- by Fitch Ratings.

By Lee Yu-sup and Cho Jeehyun

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