Fitch warns of 'large fiscal deficit' for the US

In a statement from Fitch, it was noted that the passage of the temporary budget bill in the US prevented a partial government shutdown but did not signal an improvement in the formulation of budget policies.

The statement noted that the government's budget deficit last year may have exceeded 9 percent of the gross domestic product (GDP), indicating the inadequacy of temporary policies in addressing fiscal deterioration.

The statement recalled that the latest temporary budget followed last-minute agreements on temporary budgets passed in September and November of last year to suspend the debt ceiling in June 2023 and prevent partial government shutdowns. It stated that while this demonstrates the capacity to reach an agreement with bipartisan support on funding, it also reveals how difficult it is for a divided government to reach a consensus on fiscal matters.

"WILL CONTINUE UNTIL THE NOVEMBER ELECTIONS"

The statement included the phrase, "Developments align with our view that these political dynamics will continue at least until the elections in November."

Stating that no significant fiscal consolidation measures are expected to be adopted before this date, the statement noted that potential bills such as additional support packages for Ukraine, Taiwan, or border security could further increase spending.

The statement assessed, "Given the high political polarization, it is not clear that the policy of escalating tensions will ease after the elections."

The statement noted that the consequences of these factors and whether the government's division will persist will also be important for new legislation and the determination of the debt ceiling in January 2025. It further stated that the continuous deterioration in governance over the last 20 years, including fiscal issues, combined with the expected fiscal deterioration and high public debt over the next 3 years, was the driving force behind the downgrade of the US rating to "AA+" last August.

The statement noted that fiscal challenges are further exacerbated by high interest rates, recording a 49 percent increase in net interest payments on public debt in the last quarter of last year compared to the previous year.

News Source: AA