U.S. debt ceiling crisis seen less likely in 2017: Fitch

NEW YORK (Reuters) - A U.S. debt ceiling crisis is less likely to happen in 2017 given the Republican-controlled White House and Congress will probably agree to suspend or raise the federal borrowing limit before the government runs out of cash, Fitch Ratings said on Wednesday.

A deal in November 2015 to suspend the federal borrowing cap, which would be just under $20 trillion, will end on Wednesday.

“The U.S. Congress is likely to vote in a timely fashion to suspend or raise the federal debt limit,” the rating agency said in a statement.

As of early Wednesday, there was no indication that lawmakers have scheduled a vote to raise or to renew the suspension on the debt ceiling. However, last week the Congressional Budget Office said the government could fund itself until “some time this fall.”

There have been signals the government will make debt payments a priority to avoid a default when the debt ceiling is reinstated, but falling behind on its payments to federal workers and suppliers and retired citizens would hurt the U.S. economy and terms for future borrowing, Fitch said.

“In this scenario, Fitch would review the U.S. sovereign rating, and may judge these developments to be incompatible with AAA status,” Fitch said.

Among the three major rating agencies, Fitch and Moody’s Investors Service kept their top-notch debt ratings on the United States. Standard & Poor’s stripped U.S. debt of its AAA-rating in August 2011, lowering it by a notch to AA+.

The Treasury Department said last week it will embark on “extraordinary measures” to meet its debt obligation if the debt ceiling goes into effect.

These steps include suspension of State and Local Government Series (SLGS) securities, which are used by state and local governments to temporarily store the proceeds of their bond sales, and ensure tax compliance; stopping investments in federal employee pension plans and halting sales of U.S. savings bonds.

In the prior debt ceiling showdown in October 2013, under the administration of former Democratic President Barack Obama, Fitch placed its AAA-rating on the United States for possible downgrade on increased risk of a default and delayed payments to federal employees and late benefit outlays to citizens. It removed the rating watch on the U.S. after the debt ceiling was suspended in February 2014.

Reporting by Richard Leong; Editing by Chizu Nomiyama and Frances Kerry