U.S. Faces Downgrade in 2013 Without Budget Deal, Moody`s Warns
Baku, May 21 (AZERTAC). U.S. policy makers must address debt loads projected to rise later this decade to avoid a 2013 downgrade, even as the latest budget projections are “credit positive,” according to Moody`s Investors Service.
The U.S. budget deficit will drop to $378 billion in 2015 from a record $1.4 trillion in 2009, according Congressional Budget Office data. The federal government will post an $642 billion deficit this year, the first time in five years that the shortfall has been less than $1 trillion. Moody’s said Sept. 11 that the U.S.`s top Aaa rating would likely be cut to Aa1 if an agreement on the debt ratio isn`t reached.
While projections from the non-partisan budget office forecast the ratio of U.S. debt to gross-domestic-product declining to less than 71 percent by fiscal year 2018, the CBO forecasts the measure will increase “thereafter, pointing to the uncertain long-term outlook if reform of entitlement programs does not take place at some point,” Moody`s said today in a report.
President Barack Obama sent a $3.8 trillion budget to Congress in April calling for more tax revenue and slower growth for Social Security benefits. The House passed a plan that balances the U.S. budget by fiscal 2023 without raising taxes.
Downgrades don`t necessarily correspond to higher borrowing costs.
Yields on sovereign securities moved in the opposite direction from what ratings suggested in 53 percent of 32 upgrades, downgrades and changes in credit outlook last year, according to data compiled by Bloomberg published in December on Moody`s and Standard & Poor`s grades.
S&P, the world`s largest credit rater, cut the U.S. ranking to AA+ from AAA in August 2011, contributing to a global stock-market rout and sending yields (USGG10YR) on Treasury bonds to record lows rather than driving up rates. Yields on 10-year Treasuries dropped 0.74 percentage point in the seven weeks following the downgrade to a then-record 1.67 percent. The yield stood at 1.97 percent today. Moody`s is the second-biggest credit rater.
Political wrangling over raising the U.S. debt limit was among the reasons S&P downgraded the U.S. in 2011. Hess said the debt ceiling will likely be raised to avoid a default.
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