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MEDIA
Finance ministry: national default risk hits lowest level since 2007-08 crisis
By Min Yea-Ji and Kim Young Shin
The Ministry of Economy and Finance said on Feb. 26 that Korea's risk of sovereign default has reached its lowest level since the global financial crisis of 2007-08.
The credit default swap (CDS) premium for five-year foreign exchange stabilization bonds averaged 29 basis points as of Feb. 26, the lowest among developing economies and better than those of major ones such as Canada (31) and France (36). The premium gauges the default risk of an issuing entity, with a lower figure meaning reduced risk.
The ministry said the lower figure is a sign of positive investment sentiment toward the Korean economy and improved financial stability.
"Since the beginning of the Moon administration, the CDS premium has declined 27 points," said a ministry official. "If Korea’s foreign debts equal USD 200 billion, then the lower premium has reduced the interest burden by KRW 600 billion."
A positive factor in the lower default assessment is the anticipation surrounding the second North Korea-U.S. summit this week. In September 2017, the insurance premium against South Korea's sovereign debt shot up to 76 basis points amid heightened geopolitical risk due to Pyeongyang's missile launches and military provocations.
The figure has plummeted, however, thanks to improvement in inter-Korean relations last year in the wake of the PyeongChang 2018 Winter Olympics, three South-North Korean summits and the historic inaugural summit between the North and the U.S., showing how expectations of peace on the Korean Peninsula have positively impacted the CDS premium.
Experts also cited Korea’s financial stability both internally and externally in helping the country outperform other developing economies.
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The Ministry of Economy and Finance said on Feb. 26 that Korea's risk of sovereign default has reached its lowest level since the global financial crisis of 2007-08.
The credit default swap (CDS) premium for five-year foreign exchange stabilization bonds averaged 29 basis points as of Feb. 26, the lowest among developing economies and better than those of major ones such as Canada (31) and France (36). The premium gauges the default risk of an issuing entity, with a lower figure meaning reduced risk.
The ministry said the lower figure is a sign of positive investment sentiment toward the Korean economy and improved financial stability.
"Since the beginning of the Moon administration, the CDS premium has declined 27 points," said a ministry official. "If Korea’s foreign debts equal USD 200 billion, then the lower premium has reduced the interest burden by KRW 600 billion."
A positive factor in the lower default assessment is the anticipation surrounding the second North Korea-U.S. summit this week. In September 2017, the insurance premium against South Korea's sovereign debt shot up to 76 basis points amid heightened geopolitical risk due to Pyeongyang's missile launches and military provocations.
The figure has plummeted, however, thanks to improvement in inter-Korean relations last year in the wake of the PyeongChang 2018 Winter Olympics, three South-North Korean summits and the historic inaugural summit between the North and the U.S., showing how expectations of peace on the Korean Peninsula have positively impacted the CDS premium.
Experts also cited Korea’s financial stability both internally and externally in helping the country outperform other developing economies.
***
