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27 May, 2023 08:20

Credit rating agency downgrades US

China’s leading rating service pointed to the debt-ceiling crisis as the main reason for the decision
Credit rating agency downgrades US

China Chengxin International Credit Rating (CCXI) slashed its sovereign credit score for the US by one notch earlier this week, becoming the first among top rating firms to make the move.

The leading Chinese agency, a joint venture between Beijing Zhixiang Information Management Consulting and US ratings giant Moody’s, lowered the US to AAg+ from AAAg, having placed it on review for a further downgrade, according to a statement released on Thursday. 

“The intensification of political divisions between the two parties in the United States has increased the difficulty of resolving the debt-ceiling issue,” the statement reads.

“Even if a consensus is reached, the brinkmanship would pose uncertainty to the US government’s policy path and dampen economic confidence, which could trigger further volatility in the US politics and economy,” the agency added.

According to CCXI, US debt sustainability is currently being seriously challenged, with the highest level of borrowing among the previously AAAg-rated nations, while the issue is being complicated by hawkish policies of the US Federal Reserve. The regulator has hiked the key interest rate several times over the past few months, raising the risk of asset depreciation on the balance sheets of many financial institutions.

The credit rating agency Fitch previously put the US on watch for a potential downgrade, having warned that the nation could soon lose its AAA score due to an inability to pay its bills, within a matter of days. Meanwhile, Moody’s said a mid-June interest payment on Treasuries will be critical for maintaining its top AAA grade.

Republicans and Democrats have struggled to reach an agreement to increase the debt ceiling for weeks, prompting warnings from Treasury Secretary Janet Yellen that the US is “highly likely” to default if Congress does not act soon. The move would be a first in American history, as the government has never defaulted on its debt, which has swelled to more than $31 trillion.

Late on Friday, Yellen extended the deadline for a potentially devastating default, saying the government has just a few more days to argue over the debt ceiling before it runs out of cash.

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