Fitch Ratings Tuesday placed the 'AAA' credit rating of the US on rating watch negative (RWN), saying that delays of lifting the debt ceiling would cause volatility and damage US creditworthiness.
The US Treasury Secretary has said extraordinary measures will be exhausted by Oct 17, but the US authorities have not raised the federal debt ceiling in a timely manner before the deadline, said the rating agency in a statement, Xinhua reported.
Fitch stated that failure by the US government to honour interest and/or principal payments on the due date of US Treasury securities would lead Fitch to downgrade the US sovereign credit rating to 'restricted default' until the default event was cured.
Although the treasury would still have limited capacity to make payments after Oct 17, it would be exposed to volatile revenue and expenditure flows, Fitch added.
Moreover, the delays of payments to suppliers and employees, as well as social security payments to citizens, would damage the perception of US sovereign creditworthiness and the economy.
According to the statement, it expects to resolve the RWN by the end of the first quarter of 2014 at the latest. The outlook on the long-term ratings was previously negative.
However, Fitch believes that the debt ceiling will be raised soon, but the political brinkmanship and reduced financing flexibility could increase the risk of a US default.
Despite the negative watch, Fitch confirmed the 'AAA' on US credit rating based on the country's strong economic and credit fundamentals, including its highly productive and diversified economy, extraordinary monetary and exchange rate flexibility, and the exceptional financing flexibility afforded by the global reserve currency status of the US dollar.
The last downgrade took place in August of 2011 when Standard & Poor's, another major rating agency, lowered US credit rating to AA+ as the country experienced a fiscal standstill. Currently Moody's rates the US as Aaa with a stable outlook.
