LONDON (Reuters) - The United States must do more to reduce its budget deficit and debt burden, and any repeat of last month’s political standoff that raised the risk of default would not be a good signal for its AAA credit rating, Fitch Ratings said on Friday.
Fitch put the United States on ‘Ratings Watch Negative’ on Oct 15, meaning a downgrade is already more likely than not. Fitch will decide on whether to lower the rating by March 31 next year.
“Nothing is pre-determined, but that wouldn’t be a good signal if we have that kind of outcome again,” Ed Parker, lead U.S. analyst and head of EMEA sovereign ratings at Fitch Ratings, told Reuters in a TV interview.
To view the interview, click on: reut.rs/1bIZYjS
Parker was referring to the 16-day partial shutdown of the government and last-minute agreement between Republican and Democrat lawmakers on Oct 16 to raise the country’s $16.7 trillion borrowing limit, thus narrowly avoiding a default.
That deal, however, merely promises another budget battle in a few months as it only funds the government until Jan 15 and raises the debt ceiling to Feb 7.
Parker acknowledged that the government was making progress in reducing the budget deficit - it was nearly halved in the 2013 fiscal year, bringing it down to its lowest level since 2008.
“But over the medium term there are rising costs from an ageing population, so further measures will be needed to get the deficit down and the debt ratio on a firm downward path,” he said.
The U.S. public debt stood at almost 103 percent of gross domestic product at the end of last year, according to the International Monetary Fund.
Fitch said last month that anything higher than 110 percent for the United States wouldn’t be compatible with a AAA credit rating unless it was put on a firm downward path.
Reporting by Jamie McGeever; Editing by Hugh Lawson