- Credit ratings agency sees S.Korea debt below peers
- Debt trajectory seen less concerning on AI boom
- Talks of shared earnings grow amid surge in chip sales
SEOUL, May 13 (Reuters) - South Korea has room to use fiscal policy to mitigate the economic impact of the Middle East conflict, thanks to an artificial intelligence boom, credit ratings agency Fitch said on Wednesday.
"If authorities are choosing to support demand through spending more, we don't necessarily see that as a policy misstep or an aggressively loose fiscal policy given the current environment," Sagarika Chandra, Fitch's APAC sovereign ratings director, said in an interview with Reuters.
"In the current environment where there is some possible pressure because of the external developments related to the Middle East, we do think that fiscal policy would have to do most of the stabilization work because there could be a scenario where inflation is high and monetary policy will have to stay hawkish," she said.
In South Korea, home to the world's largest chipmakers Samsung Electronics and SK Hynix, there is growing talk that these firms should share their surging earnings from the global AI boom with the rest of society.
This week, presidential policy adviser Kim Yong-beom floated the idea of "citizen dividends" in which excess earnings in the era of AI should be redistributed to all. Samsung is currently in marathon negotiations with its union over wage increases.
President Lee Jae Myung, who this year introduced a supplementary government budget to mitigate the impact from the Middle East conflict with excess tax revenue from a boom in chip exports, said on Tuesday the country must not fall into a "policy tightening trap" as he again argued for expansionary fiscal policy.
Chandra said South Korea's government debt would stabilise around 50% of gross domestic product in the medium term. "At this level of debt, it's still slightly below the AA median," she said, referring to Fitch's credit rating for South Korea.
Regarding AI, Chandra said the country's strength was not "going away anytime soon" and its economic growth potential could benefit from the boom, making the ratings agency less concerned about the debt trajectory.
She said there was upside risk to Fitch's forecasts for Asia's fourth-largest economy, which currently project 2.1% economic growth and 2.0% inflation in 2026, with a possibility of the central bank raising interest rates this year.
Reporting by Jihoon Lee; Editing by Hugh Lawson
Source: Reuters