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May 17, 2021

US credit rating at risk, warns Fitch

Credit rating agency Fitch has warned it could downgrade its AAA rating of US government debt if policymakers cannot agree a deal to raise the debt ceiling. “The pressure on the US rating is increasing,” said Fitch’s David Riley, adding that if there was no deal, there was a “material risk” of a downgrade, BBC informs. A temporary deal to avoid the “fiscal cliff” of spending cuts and tax rises was agreed at the start of the year. But a deal on raising the US’s debt limit has yet to be reached. The US is expected to hit its USD 16.4tn borrowing limit by February. If lawmakers do not agree to raise the limit, the government will not be able to pay its bills. However, Fitch said the risk of a sovereign default was “extremely low”. The government came close to defaulting when Democrats and Republicans last clashed over the debt ceiling in July 2011. This time around, Republicans have said dramatic spending cuts should form part of any deal to raise the ceiling. President Barack Obama has rejected the calls, saying it would be “absurd” to use spending cuts as a negotiating tool. He wants Republicans to the raise the ceiling without conditions. “Protracted debate prior to increasing the debt ceiling is not an exceptional event, but against the backdrop of unprecedentedly large peacetime budget deficits and outstanding debt, any delay in raising the limit would pose ever-increasing risks to the ability of the federal government to honour its obligations in a timely fashion,” Fitch said in a statement. It added that “arrears on such obligations would very likely prompt a downgrade”.The agency said that even if a deal on the debt ceiling was agreed, if the government did not implement a credible plan to cut its deficit, it was likely to downgrade US debt later this year in any case.Fitch is one of three main international credit rating agencies – the other two are Standard & Poor’s (S&P) and Moody’s. S&P downgraded the US from AAA to AA+ in August 2011 following the protracted and heated negotiations over the debt ceiling.

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