Fitch Ratings on Monday raised Korea’s sovereign credit outlook to “positive” from “stable” and kept it’s A+ rating amid signs of improving economic fundamentals, sources said.

The country’s sovereign credit fundamentals regained ground in terms of fiscal prudence, a strong sovereign balance sheet and foreign exchange liquidity, the sources close to the matter said.

“Korea’s economic fundamentals are stronger than it was during the global financial crisis three years ago and the country has an expanded capacity to absorb external shocks,” a Finance Ministry official said.

The rating agency, however, cited higher inflation and potentially weaker external demand from advanced countries as risk factors in maintaining the current growth rates in years to come.

Andrew Colquhoun, Fitch’s head of Asia-Pacific Sovereigns, wasn’t immediately available for comment.

Fitch estimates Korea’s accumulation of $318 billion of external reserves in the past three years was the third highest among all Fitch-rated countries after China and Switzerland.

Local banks have been saying the country’s bond outlook improved after Korea secured expanded currency swaps with Japan and China in October. The enlarged currency swap agreements with China and Japan ramped up Korea’s financial safety net measures after debt concerns in Europe and U.S. rattled emerging markets in recent months.

“Demand for the secondary buying of the dollar-bonds issued bounced on Oct. 19 when market heard of Seoul’s expanded currency swap with Japan from $13 billion to $70 billion,” a local bank said.

The raise comes on the back of concerns about the outlook for Asia’s fourth largest economy next year. Economists at private think tanks have been projecting a bleak view for the country’s growth next year, saying the government’s 4.5 percent growth target for next is way too ambitious.

Prime Minister Kim Hwang-sik earlier in the day said it is it is too early to abandon the 4.5 percent target fpr next year. The Finance Ministry is widely expected to lower its forecast in its updated macroeconomic policy report in December.

Korea’s credit rating was downgraded a whopping 12 notches by Fitch during the Asian Financial Crisis of 1997-8. It was steadily upgraded over the course of the economic recovery. Credit rating agency Standard & Poor’s and Moody’s currently have an “A” and an “A+” for Korea, respectively.

By Cynthia J. Kim (cynthiak@heraldcorp.com)