Continued US Gov Shutdown Could Result In Downgrade Of Credit Rating, Says Fitch

The United States government shutdown which is close to its third week is bring in more problems for the country apart from a large number of its government employees not getting their salaries and a host of its non-essential services remain unfunded. The credit rating of the country is being reviewed because of the government shutdown by ratings agency Fitch.

There is a possibility that the credit rating of the US be reduced from triple-A sovereign credit rating later this year if the debt limit is hit by the government because of the shutdown, said Fitch global head of sovereign ratings James McCormack while speaking in London on Wednesday.

If no action is taken by the government to end the shutdown soon enough, the US would hit its credit ceiling on March 1. That would result in the US government not being able to legally borrow money to pay financial obligations if lenders do not raise the credit ceiling for the US government. And in that situation, expending cash from the US treasury would be the only way to make payments for the debt obligations.

The US could be pushed towards the precipice of a debt default is the shutdown continues and if there is no handling of the debt ceiling of the country.

Such a situation is a cause of concern for Fitch.

“If this shutdown continues to March 1 and the debt ceiling becomes a problem several months later, we may need to start thinking about the policy framework, the inability to pass a budget… and whether all of that is consistent with triple-A,” McCormack said as reported by news agency Reuters.

However, many analysts believe that the chances of downgrading of US’s credit rating are low. Just a few days ago, a commentary on the U.S. government shutdown was issued by Fitch. The ratings agency said that it believes that chances of the U.S. not lifting its debt limit are “remote” even though it acknowledged that it would be a cause for concern if the U.S. government failed to raise its debt limit. In the last several months, there have been indications that the credit ratings of the US government are secure, from two other ratings agency S&P and Moody.

However, these are proving to be not so good for the relation between the US and the European Union. According to the Associated Press, EU’s delegation for U.S. relations said an “increasingly harmful approach from the White House” is being experienced by it, in a letter sent to Congress on Wednesday.

EU’s delegation for U.S. relations said it’s experiencing an “increasingly harmful approach from the White House,” “The Trump Administration could not have chosen a worse moment to attack the EU,” the delegation added.

The “lambast[ing] the EU as bureaucratic” by the Trump administration, among other charges, were cited by the group. It further stated that such comments “play into the hands of rival global powers and can only lead to greater fragmentation rather than much needed increased cooperation.”

(Adapted from Fortune.com)

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Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability, Uncategorized

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