US credit rating downgraded over anticipation of 'fiscal deterioration'

A leading credit rating agency has downgraded the United States' credit rating due to the government's continued mismanagement of fiscal and debt matters, making Washington an untrustworthy business partner.

The downgrade from a rating of “AAA” to “AA+” by the Fitch Rating agency on Tuesday is seen as another embarrassing blow to the US government, which had long been considered to be one of the safest borrowers in global finance.

“There has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025,” Fitch Ratings wrote.

“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management," it added.

Fitch’s downgrade comes roughly three months after US President Joe Biden signed a deal to raise the debt limit just days before the US was expected to default on the national debt.

The last time the US credit rating was downgraded was in 2011, following a similar budget showdown that came within hours of the government defaulting on its debts.

The reputed credit rating agency warned then that the growing debt — now well over $32 trillion — and Congress’s inability to manage it in a productive and responsible way posed threats to the country’s creditworthiness.

“The government lacks a medium-term fiscal framework, unlike most peers, and has a complex budgeting process. These factors, along with several economic shocks as well as tax cuts and new spending initiatives, have contributed to successive debt increases over the last decade,” it noted.

“Additionally, there has been only limited progress in tackling medium-term challenges related to rising social security and Medicare costs due to an aging population,” it added.

The rating agency also cited domestic issues such as “increased political polarization and partisanship as witnessed by the contested 2020 election” in a June warning as reasons why investors were losing confidence in the American governance system.

ME