In a new report, Moody’s Investors Service says that the U.S. government’s credit rating is likely to remain at the ‘AAA’ level, despite the deterioration in its debt position since the financial crisis.
Moody’s says that the growth in the deficit from projected increases in social spending represents the most likely source of credit pressure, but that this is a long-term issue that is unlikely to pose a risk to the U.S. credit rating for several years.
In the meantime, that rating is supported by the country’s very large and diverse economy, its strong record of GDP and productivity growth, and the status of the U.S. dollar and its Treasury bonds as global reserve assets, which allows the U.S. government to carry a higher level of debt relative to other countries, Moody’s says.
The rating agency also notes that U.S. budget deficits have declined steeply in recent years, and that debt ratios are stabilizing and should remain at or near current levels over the remainder of the decade. The ratio of federal government debt to GDP is projected to peak at the end of 2014 at 74.4% and to stabilize at just below that level for the remainder of the decade, Moody’s says.
In the near-term, the outlook for economic and fiscal performance are favourable, Moody’s suggests. “Toward the end of the decade, the costs of social programs become a greater credit concern,” it says, noting that as these costs rise, debt loads will too.
“Adjustments to major social programs such as social security and health care spending may eventually become necessary to avoid pressure on U.S. creditworthiness,” says Steven Hess, senior vice president at Moody’s. The agency says it makes little difference to credit quality whether adjustments to improve fiscal balance are made on the spending side, or on the revenue side.