The new dates and deadlines for agreeing on a revised US government debt limit will be a “key driver” for resolving the negative watch assigned on the US credit rating, the global rating agency Fitch has said.
As a short-term fix to the debt ceiling crisis in October, the Congress government had suspended the debt limit – the maximum amount of debt the federal government can issue to the public and other federal agencies until February 7, 2014.
On February 8, the limit would be reset at the level of debt at that date, which is expected to be around $17.3 trillion.
“Timely resolution of the debt limit is necessary to avoid immediate uncertainties about the Treasury’s ability to remain current on its obligations, including payments on Treasury securities,” Fitch said in a statement.
Fitch Ratings had assigned Rating Watch Negative (RWN) to the ‘AAA’ US sovereign rating on October 15, 2013.
It further noted that “the debt ceiling will be raised (or suspended) before the Treasury exhausts its borrowing capacity.”
The rating agency further cautioned that the time frame for using extraordinary measures is more “uncertain” than when they were deployed in 2013 as the US government typically runs large deficits in February and March.
“…repeatedly casting uncertainty over the full faith and credit of the US risks undermining confidence in the role of the US dollar, having a detrimental effect on the economy, and is not a characteristic typical of a ‘AAA’ sovereign,” Fitch said.
The next scheduled review of the US rating by Fitch is on March 21. However it said “…the review could be brought forward to reflect developments and events”.