Fitch Mulls Downgrading US Credit Rating

International credit rating agency Fitch put the US’ ‘AAA’ credit rating on “rating watch negative” based on the stalled debt ceiling negotiations between the White House and the Congress.
“The political brinkmanship and reduced financing flexibility could increase the risk of a US default,” Fitch wrote in a release Tuesday afternoon.

The agency said the US Treasury, though it could still make some obliged payments after October 17, may be exposed to “volatile revenue and expenditure flows” based on the impasse in Washington, Al-Alam reported.

“The US risks being forced to incur widespread delays of payments to suppliers and employees, as well as social security payments to citizens – all of which would damage the perception of US sovereign creditworthiness and the economy,” Fitch wrote.

Halted talks on raising the debt ceiling risk “undermining confidence in the role of the US dollar as the preeminent global reserve currency, by casting doubt over the full faith and credit of the US,” Fitch went on. “This ‘faith’ is a key reason why the US ‘AAA’ rating can tolerate a substantially higher level of public debt than other ‘AAA’ sovereigns.”

“The announcement reflects the urgency with which Congress should act to remove the threat of default hanging over the economy,” a US Treasury spokesperson said.

In August 2011, credit rating agency Standard & Poor’s downgraded the US credit rating from ‘AAA’ (outstanding) to ‘AA+’ (excellent) amid a similar stalemate in Washington on raising the debt ceiling.

Fitch added that the regularity of the US debt-ceiling fights contributed to Tuesday’s move.

“The repeated brinkmanship over raising the debt ceiling also dents confidence in the effectiveness of the US government and political institutions, and in the coherence and credibility of economic policy. It will also have some detrimental effect on the US economy,” Fitch wrote.

House Republicans nixed a vote scheduled for Tuesday evening on a plan that would have sought to reopen government agencies and raise the debt ceiling before the US defaults on October 17.