Fitch puts U.S. credit rating on negative watch as debt limit deadline nears
2013-10-16 10:53:55
Fitch Ratings on Tuesday placed the U.S. government's 'AAA' sovereign debt rating under negative watch, citing the failure of authorities to raise the federal debt ceiling as the Treasury deadline closes in.
Fitch said it has placed the government's 'AAA' long-term foreign and local currency issuer default ratings on Rating Watch Negative, or RWN. The ratings of all outstanding U.S. sovereign debt securities have also been placed on RWN, as has the short-term foreign currency rating of 'F1+'.
"The U.S. authorities have not raised the federal debt ceiling in a timely manner before the Treasury exhausts extraordinary measures," Fitch said in a statement. The U.S. faces the risk of default if it fails to raise the $16.699 trillion debt limit by Thursday.
The U.S. Treasury Secretary has said that extraordinary measures will be exhausted by October 17, leaving cash reserves of just $30 billion.
Fitch said it still believes the debt ceiling to be raised soon, but "the political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default."
"Although the Treasury would still have limited capacity to make payments after 17 October it would be exposed to volatile revenue and expenditure flows. The Treasury may be unable to prioritize debt service, and it is unclear whether it even has the legal authority to do so," the rating agency said.
The prolonged negotiations over raising the debt ceiling risks undermining confidence in the role of the U.S. dollar as the preeminent global reserve currency, by casting doubt over the full faith and credit of the U.S, it noted.
The repeated brinkmanship over raising the debt ceiling also dents confidence in the effectiveness of the U.S. government and political institutions, Fitch said.
Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell have reportedly been making progress in their fiscal negotiations.
The new Senate plan under discussion reportedly include steps that would immediately end a government shutdown and extend the government's borrowing authority to February 7, 2014.