European rating agency Scope Rating downgraded the United States' credit rating by one notch on Friday (October 24), citing continued deterioration in public finances and weakening governance standards.
On the 24th, Scope Ratings downgraded its rating on U.S. local and foreign currency long-term issuer and senior unsecured debt from “AA” to “AA-”, three notches below the company’s highest rating; however, it also revised its outlook from “negative” to “stable”.
The statement said, "This downgrade was caused by the continued deterioration of public finances and weakening governance standards. The weakening of governance standards reduces the predictability of U.S. policymaking, increases the risk of policy missteps, and reduces Congress's ability to address the nation's structural fiscal challenges."
On September 1, the U.S. government was plunged into a shutdown because the Republican and Democratic parties failed to reach an agreement on a new temporary funding bill before the end of the previous fiscal year on September 30. Now, more than three weeks have passed.
At the outset of the US government shutdown, Scope Ratings warned that the congressional deadlock posed a risk to the US rating outlook.
Another stain on a credit record
In its statement, Scope noted that persistently high federal deficits and increasing interest payments are key drivers of the growing public debt-to-GDP ratio, which is projected to reach 140% by 2030, a level far higher than that of most sovereign nations.
The rating agency also stated that the extension of previous tax cuts and the high share of mandatory spending have limited budgetary flexibility in the short term; and the consolidation of power within the executive branch, coupled with frequent legislative deadlocks caused by congressional polarization, undermines policy stability and increases the risk of mistakes.
Scope's actions mark yet another blemish on the U.S. credit record. (According to Moody's... ) After its rating was downgraded in May, the United States lost its last of the three highest ratings from the three major rating agencies. Meanwhile, the path of American public finances under President Donald Trump is facing increasing scrutiny.
(Article source: CLS)
