Ratings cut a blow to US status

The United States has lost its top-notch credit rating on account of a host of reasons such as inadequate economic planning, an imbalance between fiscal and monetary policies, declining good governance, rising debt, way more complex causes and the like.

Ongoing trade and tariff wars have been a major factor in the failure of US President Donald Trump's economic team to convince investors despite efforts to increase revenue and reduce spending.

According to the Saudi Gazette, the United States has lost its last remaining perfect credit rating after Moody's downgraded the country's status from "AAA" to "Aa1", citing mounting concerns over debt sustainability and growing interest costs.

The downgrade, announced on Friday, marks the first time since 1917 Moody's has assigned anything less than a top-tier rating to the US government bonds.

The move follows earlier downgrades by S&P Global Ratings in 2011 and Fitch Ratings in 2023, making this a final blow to the United States' decades-long status as a triple-A borrower.

Moody's said the decision reflects a significant and sustained increase in the federal debt burden and interest payment ratios, now well above levels of similarly rated economies.

It is a bitter reality that in the wake of poor economic planning, imbalance of monetary and fiscal policies, falling good governance and widening socio-economic disparity, the successive US governments and Congress have miserably failed to agree on meaningful measures to reverse the trend of large annual fiscal deficits and growing interest costs. Furthermore, Trump's desire to reduce spending through Elon Musk's Department of Government Efficiency has fallen far short of its initial goals.

Thus, Moody's downgrade of the US credit rating should be a wake-up call for Trump and Congressional Republicans to put an end to their personal agenda and hasty pursuit of the deficit-busting tax giveaways.

Statistical data shows that the US economy contracted in the first three months of the current year as government spending fell and imports surged due to firms racing to get goods into the country ahead of the imposition of new tariffs.

CNN has reported that annual deficits would jump from $1.8 trillion in 2024 to $2.9 trillion by 2034 as the federal government would continue to spend more than it would raise in revenue.

Ballooning deficits, the unique US debt ceiling mechanism and political intransigence have been at the centre of the US rating downgrade by all three major credit rating agencies.

In 2011, S&P cited "political brinksmanship" and "America's governance and policymaking becoming less stable, less effective and less predictable." In 2023, Fitch warned of the United States' "fiscal deterioration, high and growing general government debt burden and erosion of governance."

America was running a $1.3 trillion annual budget deficit in 2011, a number that rose to $1.8 trillion last year.

Economic strategist and regional expert Dr Mehmoodul Hassan Khan said the reasons are very complex, complicated and integrated, consisting of staggering budget and fiscal deficits, an awkward US debt ceiling system and political obstinacy, which have been mainly behind the rating downgrades by the three major credit rating agencies.

Moreover, institutional detente, good governance and policymaking are becoming less stable, less effective and less predictable, gearing towards weakening of the economy and the macroeconomic indicators.

Thus, continued fiscal deterioration, the high and growing general government debt burden and the erosion of governance have become the new normal in the US monetary and fiscal policies.

The US debt has long been dubbed by investors as the safest of safe havens, but Moody's downgrade, along with Fitch and S&P Global, signals Washington has lost some lustre, causing US Treasury yields to rise as investors see more risk in lending money to the government.

Khan said, "Holistic and comprehensive reforms and adjustments to the US taxation and spending along with balancing of fiscal and monetary policies, institutionalisation of good governance from the top to bottom and constructive politics would rectify the debt challenge."

The writer is a staff correspondent