Based on this, credit rating agency Fitch believes the US has a higher debt tolerance than all other sovereign debtors, and has also rated the company “AAA”, according to its credit rating analysis. However, Fitch Ratings also highlights that the negative outlook for the US “AAA” sovereign rating reflects persistent risks to the public finances and debt trajectory, along with improvements in forecasts for US debt and fiscal dynamics since the previous rating review.
On July 31 last year, Fitch lowered the outlook for the US sovereign debt rating from a previously stable level, mainly on the grounds that the US fiscal position was still deteriorating during that period and there was no credible fiscal consolidation plan. In its forecast of a worsening outlook, the credit rating agency has assumed that the US government’s debt-to-GDP ratio will exceed 130% this year.
However, in justifying the US debt rating boost on Wednesday, credit rating agency Fitch said its current forecast, based on debt dynamics, is that the US government debt-to-GDP ratio will stabilize at around 121 percent this year. The company bases this calculation on its forecast that the nominal growth rate of the US economy will exceed 10% this year. And Fitch expects the US government’s deficit as a whole in 2021 to be 14 percent of GDP after 14.9 percent last year, but it will drop to 7 percent next year.
Two of the three global credit rating agencies, Fitch Ratings and Moody’s Investors Service, record US government debt obligations with the best possible rating of “AAA/Aaa”. However, Standard & Poor’s – the first and to date only global credit rating agency – withdrew this sovereign debt rating from the US as early as 2011, the first time it had given such a rating to US sovereign debt in 1941.
Since the downgrade ten years ago, Standard & Poor’s has recorded long-term US government debt with a rating of “AA plus” one notch below “AAA”. At the time, Standard & Poor’s justified its decision, which caused a severe shock to global markets, by saying that the fiscal consolidation plan that expired at the time of discussion of the debt increase was not sufficient to stabilize the medium-term US public debt. a path.
If Fitch downgrades the rating and subsequently withdraws its US rating of “AAA”, the United States will no longer be a sovereign debtor with a rating of AAA among international investment institutions, as international practice generally requires investment firms to have two credit ratings and their ratings are taken into account.
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