US Failure To Raise Debt Limit Could Put Pressure On Country's AAA Rating - Fitch

Failure to raise the US debt limit could jeopardize the country's triple-A credit rating, Fitch Ratings warned on Friday, as the country risks defaulting on its obligations for the first time in its history

WASHINGTON (UrduPoint News / Sputnik - 01st October, 2021) Failure to raise the US debt limit could jeopardize the country's triple-A credit rating, Fitch Ratings warned on Friday, as the country risks defaulting on its obligations for the first time in its history.

"Fitch believes that the debt limit will be raised or suspended in time to avert a default event, but if this were not done in a timely manner, political brinkmanship and reduced financing flexibility could increase the risk of a US sovereign default," the rating agency said in a statement. "Prioritization of debt payments, assuming this is an option, would lead to non-payment or delayed payment of other obligations, which would likely undermine the United States' 'AAA' status."

In the event of default, Fitch said it would only assess a negative rating to the affected US debt instruments, not the entire country profile.

"On obligation ratings, Fitch would downgrade only the affected instruments to a default rating level, while non-defaulted instruments that continued to perform would retain their then-current ratings," it said. "The Country Ceiling would likely remain 'AAA'. This treatment would be consistent with Fitch's approach to previous sovereign default events in which a limited number of debt instruments have defaulted while other instruments continue to perform.

"

Fitch added that once the default was cured, the US sovereign Issuer Default Ratings (IDR) would reflect its assessment of the US government's credit profile.

Consideration would be given to the country's willingness to pay, the effectiveness of government and political institutions, the coherence and credibility of economic policy, the potential long-term impact on the government's cost of funding and cost of capital for the economy as a whole, along with implications for long-term economic growth, it said.

"We would also continue to assess the prospects for future fiscal measures to contain government deficits in the face of long-term spending pressures and to place public debt on a downward path over the medium to long term," Fitch said.

Earlier on Friday, President Joe Biden signed a short-term government funding bill passed by the US House and Senate to keep Federal agencies open through early December and stave off a partial government shutdown.