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Fitch maintains negative watch on AAA rating despite debt deal

By Le Figaro with AFP

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The AAA rating is the highest possible. Adobe Stock

The rating agency Fitch on Friday maintained its negative watch, under which it had placed the US’s precious AAA rating, due to the debt crisis, and despite an agreement passed in Congress on Thursday evening. “Although the resolution of the impasse over the US debt limit allows the government to meet its obligations“, Fitch maintains this watch, indicating to examine”all the consequences of this latest episode of the crisis and the prospects for medium-term budget and debt developments“, the agency clarifies in a press release.

However, Fitch specifies that it has “the intention to lift the negative watch on the +AAA+ rating in the US in the 3rd quarter of 2023“to judge it”the coherence and credibility of policy-making as well as the expected medium-term financial and debt developments will be key factors in our assessment“. Democrat Joe Biden’s administration and the Republican opposition have led tense negotiations in recent weeks to raise the debt ceiling, thereby allowing the world’s largest economy to continue paying wages, pensions, health care costs or even bills and continue to borrow on the markets.

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Declining confidence in fiscal management and debt

It made it possible to avoid payment default in extremis, while the liquidities would only make it possible to hold out until 5 June. The text would allow Washington to honor its payments until early 2025. But for Fitch, these “repeated political clashes over the debt ceiling and last-minute suspensions (…) reduce confidence in fiscal and debt management“. The rating agency even regrets “a steady deterioration of governance over the past 15 years“.

She thus refers to:increased political polarization and partisanship as evidenced by the contentious 2020 election, repeated last-minute negotiations over the debt ceiling and failure to address fiscal challenges“. The US rating remains “supported by exceptional strengths, including the size of the economy, a high GDP per population and a dynamic business environment“, nuance Fitch, while”the US dollar is the world’s largest reserve currency, giving the government exceptional financing flexibility“.

But the agency further warns,some of these strengths can be eroded over time by gaps in governance“.



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