Fitch issues statement on US debt burden

In a statement from Fitch, it was noted that a potential divided government after the US presidential election would continue to complicate policy formation, and that there is very little political appetite to address fiscal challenges.

Pointing out that fiscal issues will become a focal point for the next administration, the statement said, "We believe that fiscal year 2025 appropriations will remain unresolved until early 2025 and that the debt ceiling suspension will expire at the end of the year.

The composition of the new Congress could be critical in determining how quickly and smoothly these issues are resolved."

FOCUS ON POST-ELECTION

The statement mentioned that there may be pressure to extend tax cuts regardless of who wins the election, noting that most of the 2017 tax cuts, which are set to expire at the end of 2025, are expected to be extended.

Noting that nominal gross domestic product (GDP) growth of nearly 3.7 percent is expected in the medium term, the statement assessed, "However, high primary deficits mean this will not stabilize general government debt."

The statement indicated that large primary deficits after the elections are expected to cause the US debt burden to continue to rise, and that the increasing levels of government debt will be a significant rating issue over the next 5 years.

However, it was emphasized that current balancing forces mean the US can absorb a higher debt-to-GDP ratio than other countries in the "AA" category, and that financing flexibility is a key strength for the country's credit profile.

News Source: AA