LONDON, October 01 (Fitch) The US government shutdown is not in itself a
downgrade trigger for the sovereign's 'AAA'/Negative rating. However, it
undermines confidence in both the budgetary process and critically in the
prospect of the debt ceiling being raised in a timely manner to avert the risk
of default on US sovereign debt obligations, says Fitch Ratings in a reiteration
of its June 28 rating commentary.
A formal review of the rating with potentially negative implications would be
triggered if the US government has not raised the federal debt ceiling in a
timely manner prior to when the Treasury will have exhausted extraordinary
measures and cash reserves. According to official comments by the US Treasury
secretary, extraordinary measures could be exhausted by 17 October.
In such a scenario, the Treasury would be forced to dramatically cut back on
current spending with adverse implications for the economic recovery. Even if it
were to prioritise debt service - something the Treasury has repeatedly stated
it has neither the legal authority nor logistical capability to do - it would
likely incur arrears on a range of payment obligations and thus continue to
incur debt, but in a disorderly and disruptive manner.
Even if the debt limit is not raised in a timely manner we believe there is
sufficient political will and capacity to ensure that Treasury securities will
continue to be honoured in full and on time. Nevertheless, investor confidence
in the full faith and credit of the US would be undermined in such a scenario.
This "faith" is a key underpinning of the US dollar's global reserve currency
status and reason why the US 'AAA' rating can tolerate a substantially higher
level of public debt than other 'AAA' sovereigns.
Non-essential operations of the federal government will cease from today - the
government shutdown - after the US House of Representatives and Senate failed to
agree a continuing resolution to grant it the necessary spending authority.
Contact:
Ed Parker
Managing Director
Sovereigns
+44 20 3530 1176
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
Tony Stringer
Managing Director
Sovereigns
+44 20 3530 1219
Jeremy Carter
Managing Director
Fitch Wire
+44 20 3530 1391
Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:
peter.fitzpatrick@fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market
commentary page. The original article can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.
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