Public finance in Korea is healthy enough for the government to provide more stimulus without negative consequences for its sovereign debt rating, senior vice president of Moody’s Sovereign Risk Group for Asia said Thursday.

Although Korea would remain relatively less vulnerable to the ongoing debt saga in Europe, its “modest” amount of public debt leaves Seoul more room for additional policy accommodation should growth stalls further, Tom Byrne told reporters in Seoul.

“Korea has good financial government strength. If another crisis comes to Korea it could launch a big stimulus program and there won’t be negative rating consequences,” he said.

“Debt standing at 33 percent of gross domestic product is modest. Fiscal prudence has been a hallmark of policy approach since the Asian Financial Crisis and I expect this to continue in Seoul.”

Seoul is currently in deficit reduction mode, with plans to cut fiscal deficit to 1 percent of gross domestic product by the end of next year from the current 2 percent expected for this year. It plans to achieve a budget balance in 2013.

But Seoul also is facing mounting calls for additional stimulus programs to lubricate the slowing growth and meet demands for social welfare.

Of the 2012 budget plan proposed by the Finance Ministry, general welfare took up the largest single slice out of the total budget with a record 92 trillion won, or 28.2 percent, but Byrne said the figure still stands at bottom when compared with its peers at Organization for Economic Co-operation and Development. The Singapore-based economist warned although Seoul would have no problem making budget surpluses in the years ahead, social spending demand will grow fast.

“The Korean government wants a more inclusive society and social welfare spending pressure will grow consistently as the society ages and labor force participation rate falls,” he said.

He predicted Korea to undergo fundamental demographic shift in its labor force where it will see a shortage in labor market as a chunk of population retires in a decade or two.

Statistics Korea say Asia’s fourth largest economy is aging at a faster pace than other major advanced nations, with more than one out of 10 people are already aged 65 or older as of last year.

The statistics agency expects the ratio to jump to 14.3 percent by the end of 2018 and rise further to 20 percent in 2026.

Moody’s downgraded Korea’s 2012 growth projection to 3.5-4 percent, down from its September estimate of 4.5 percent.

The economy grew 0.7 percent in the July-September quarter, slowing from a 0.9 percent expansion in the April-June period. Trade terms worsened to the lowest level in three years in the third quarter, with its net terms-of-trade index for goods coming in at 78.7, down 9.9 percent from a year earlier.

Commenting on market’s expectations for a series of credit rating downgrade across Europe, Byrne said credit profile in Asia will strong independent of situation elsewhere.

“Moody’s have Asian countries in our top ratings including Singapore and Hong Kong with Aaa and Aa1 respectively. The region has more positive outlooks than Europe and that tends to correlate with future rating movement over the long term,” he said.

Moody’s currently has an A1 for Korea which it maintained after raising it from an A2 last April. It cited the country’s fast rebound from the 2008-9 financial recession and solid accumulation of foreign exchange reserves then.

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