Fitch Comments on U.S. Debt Ceiling and Sovereign Rating

LONDON & NEW YORK--()--U.S. Treasury Secretary Geithner this week informed Congress that the current limit on federal government debt of USD14.29 trillion will be breached by no later than May 16 based on the latest projections for federal tax receipts and expenditures. He also stated that extraordinary measures could forestall this event until July 8 2011 - the date when the debt ceiling is reached and the 'United States would otherwise default on its obligations.'

In Fitch's opinion, the likelihood of the U.S. government failing to honor its financial obligations and in particular make due and full payments on U.S. Treasury securities is extremely low. Ultimately, the recognition of the dire consequences of failing to raise the debt ceiling in a timely manner will prevail over differences on the more fundamental issue of how best to place U.S. public finances on a sustainable path over the medium- to long-term.

'The brinkmanship over the debt ceiling and the 2011 budget will be resolved. Of greater threat to U.S. financial stability and its 'AAA' status would be the failure to agree on a credible medium-term fiscal consolidation strategy as economic recovery becomes more secure,' said David Riley, Head of Sovereign Ratings at Fitch.

'Fitch does expect that the tough choices on tax and spending will be made - as is starting to be seen at the state and local level - that are necessary to place public finances on a sustainable path,' added Riley.

Fitch currently projects the general government (a broad definition of government that includes state and local governments) to be in deficit of around 10% of GDP in (calendar) 2011, the largest of any 'AAA' rated sovereign government. Moreover, the ratio of general government debt to GDP is projected to reach 100% in 2012, the highest public debt burden of any 'AAA' rated sovereign. The U.S. 'AAA' status is underpinned by the flexibility and dynamism of its economy, as well as the exceptional financing flexibility that derives from the U.S. dollar's role as the world's predominant reserve currency. Nonetheless, even the U.S. government faces an inter-temporal budget constraint and failure to reduce the budget deficit and stabilise public debt would, eventually, erode confidence in U.S. sovereign creditworthiness and its 'AAA' status.

Additional information is available at 'www.fitchratings.com'

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Contacts

Fitch Ratings
David Riley, +44 20 3530 1175
Group Managing Director
Fitch Ratings Ltd
30 North Colonnade, London, E14 5GN
or
Shelly Shetty, +1-212-908-0324
Senior Director
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com
Peter Fitzpatrick, +44 20 3530 1103
peter.fitzpatrick@fitchratings.com

Contacts

Fitch Ratings
David Riley, +44 20 3530 1175
Group Managing Director
Fitch Ratings Ltd
30 North Colonnade, London, E14 5GN
or
Shelly Shetty, +1-212-908-0324
Senior Director
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com
Peter Fitzpatrick, +44 20 3530 1103
peter.fitzpatrick@fitchratings.com