Moody's warns of credit rating risk in potential US govt shutdown

By Al Mayadeen English
Source: Agencies
25 Sep 2023 23:18
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With less than a week remaining, the proposed measures have yet to gain approval in the Republican-controlled House and face slim chances in the Democratic-controlled Senate.

A sign for Moody's Corp. is shown Aug. 13, 2010 in New York. Moody's Investors Service is a credit rating agency. (AP)

Moody's ratings agency has issued a warning that a potential US government shutdown, driven by political gridlock in Congress, could have adverse effects on the nation's top-tier credit rating.

The looming threat of a government shutdown, driven by demands for significant spending cuts by hardline Republicans in the House of Representatives, comes just four months after narrowly avoiding a credit default.

With less than a week remaining, the proposed measures have yet to gain approval in the Republican-controlled House and face slim chances in the Democratic-controlled Senate.

"A shutdown would be credit negative for the US sovereign," Moody's Investors Service wrote in a note to clients on Monday.

Moody's Investors Service stated that a government shutdown would be "credit negative" for the US sovereign, emphasizing the economic risks associated with failing to reach an agreement to fund the government by the end of the month.

While Fitch and S&P have downgraded US debt in recent years, increasing the associated risk and borrowing costs, Moody's is the only major agency that has maintained the highest rating for US sovereign debt.

A shutdown "would underscore the weakness of US institutional and governance strength relative to other AAA-rated sovereigns," Moody's wrote.

"Further, a prolonged shutdown would be disruptive to the US economy and financial markets, with potential negative ramifications for the sovereign's debt affordability," it added.

According to a report issued by the Biden administration a week ago, the ramifications of a government shutdown would be far-reaching, with risks including the depletion of the Federal Emergency Management Agency's disaster relief fund, disruptions to scientific research, delays in FDA food inspections, interruptions to hundreds of thousands of federal workers' salaries, and potential impacts on health programs.

Yesterday, President Joe Biden cautioned that if "extremist" members of the Republican Party abstain from voting on the new budget, potentially leading to a government shutdown, it would impact all citizens of the nation.

"Just a few months ago, after long negotiations between myself and the new [House of Representatives] speaker [Kevin McCarthy], we agreed the spending level of government will fund essential domestic and national security priorities while still cutting the deficit by $1 trillion over the next decade. Now, a small group of extreme Republicans don’t want to live up to the deal, so now everyone in America could be forced to pay the price," Biden said addressing the Congressional Black Caucus Foundation.

He warned that the government shutdown would have repercussions on a wide range of areas, including food security and cancer research, adding that "It's time for the Republicans to start doing the job America elected them to do."