UK top credit rating at risk over debt: Fitch

TOKYO Tue Nov 10, 2009 6:48am EST

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TOKYO (Reuters) - Britain is most at risk among the big economies to lose its top-notch credit rating, while Japan faces a review of its rating if government debt issuance rises greatly, Fitch Ratings warned on Tuesday.

David Riley, Fitch's co-head of global sovereign ratings, told Reuters Television in an interview that Britain's AAA rating is more at risk than that of any of the four big economies with a top rating. The other AAA countries are the United States, Germany and France. His comments sent the pound down more than a cent to $1.6616.

"It's clear that the UK's ability to sustain large public fiscal deficits and a level of public debt without driving up interest rates and without putting sterling under significant pressure is much less than in the case of the U.S," he said.

"If there was another significant fiscal stimulus package in the UK, then UK rating would be at risk."

Riley welcomed growing political consensus toward fiscal discipline ahead of a general election expected next year. Fitch's outlook on the rating is still stable

"Whichever government will come to office, we are expecting more stringent and more detailed plan for stabilizing public financing. But if we don't get that after election, the UK rating is at quite significant risk."

The IMF projects Britain to run a deficit of 11.6 percent of GDP in 2009, the second biggest among G20 countries after 12.5 percent in the United States.

SERIOUS CONCERN

Riley said Fitch would review its AA-minus rating on Japanese government bonds if debt issuance materially rose above this fiscal year's 44 trillion yen ($490 billion) next year. Its outlook on the rating is stable for now.

"To be frank, at this point it is quite hard to see how they are going to maintain the 44 trillion yen," Riley said.

"We would be seriously concerned if there was a material increase in the level of JGB issuance above the 44 trillion yen level, the current level ... particularly if that was combined with a lack of any credible commitment to stabilize public finance in Japan and ultimately bring down debt."

Government bond yields have risen to a 4- month high this week on investor worries about a rise in issuance.

Cabinet ministers have said they want to keep new debt issuance below 44 trillion yen next fiscal year, the same as this year, but an expected shortfall in tax revenue is raising doubts on whether that is possible.

He also said Fitch was concerned about France.

"We do have also some concerns in case of France ... We have seen significant deterioration in fiscal position in France. There is some pressure starting to build there."

"The country that is so far looking the most secure in terms of triple-A status is Germany. Germany has the least fiscal adjustment needed to stabilize the debt."

Riley said it would be too soon to take away stimulus from big developed countries as too early an exit could be damaging.

But he added governments will need to come up with a longer-term plan to rein in deficits.

"As we go through next year, we have to see some difficult decisions being taken in terms of cuts in spending in nearly all of the major economies.

(Editing by Chris Gallagher & Jan Dahinten)

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