RTTNews - Fitch Ratings on Tuesday affirmed South Korea's long-term foreign currency Issuer Default Rating at 'A+' and upgraded its outlook to stable from negative, due to an improvement in the sovereign credit fundamentals compared to the 'A' peer group.

At the same time, the firm affirmed the long-term local currency IDR at 'AA', short-term IDR at 'F1' and the Country Ceiling at 'AA', also with the outlook revised to stable from negative.

South Korea's sovereign credit fundamentals have regained ground against the 'A' peer group, warranting an outlook revision to Stable, Ai Ling Ngiam, Director, Asia Sovereigns said.

The firm said the earlier pressure on the sovereign's external balance sheet posed by domestic banks' foreign-currency (FC) funding distress during the global credit crunch in the fourth quarter eased significantly since the first quarter of this year.

With respect to public finances, Fitch said Korea is likely to have avoided large fiscal costs associated with the deleveraging of the banking sector, thanks to easing bank wholesale funding conditions and a quick export-led recovery from a sharp fourth quarter economic contraction, resulting in only a mild deterioration in bank asset quality.

The firm expects the country's economic resiliency and the authorities' upcoming efforts to re-establish a conservative fiscal agenda to likely provide scope for the government to record a fiscal surplus by 2011, which would make Korea only one of the six countries rated by Fitch to revert from a deficit.

Moreover, for the first time since 2007, Fitch expects Korea's general government debt to be less than the 'A' median for the 2009-11 period, as debt financing requirements of its 'A' range peers out-pace that of Korea.

In the meantime, the country continues to balance its credit strengths in terms of fiscal prudence and external finance improvements against potential security risks and reunification costs associated with North Korea, the firm added.

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