Moody's says U.S. debt-to-GDP ratio could suffer

February 15, 2013 - 10:49 AMT

PanARMENIAN.Net - Moody's Investors Service on Thursday, Feb 14, said that future changes to the U.S. sovereign credit rating will turn on the expected debt trajectory, with more budget measures needed to shrink key debt ratios, according to Reuters.

If the United States does not see high growth rates, the debt-to-GDP ratio could suffer, Moody's said in a statement.

"Therefore, further fiscal policy actions in coming months would be needed to ensure a decline in the debt ratios," the statement added. "Any rating action in coming months will be predicated on the expected debt trajectory, which in turn will result from fiscal policy and the expected path of economic growth."

The statement laid out a series of budget milestones facing the United States in coming weeks, including the sequester, a package of automatic spending cuts set to kick in at the start of March, and the May 19 reinstatement of the country's debt limit.

That debt limit, Moody's said, is not a "fundamental factor" for the U.S. rating, though it does pose a small degree of event risk.

The United States bumped up against its $16.4 trillion debt ceiling on December 31. Lawmakers subsequently suspended the debt limit to allow time for more budget negotiations.

The U.S. rating, once seen as near-inviolable, has taken a beating in recent years. Standard & Poor's downgraded the United States to AA-plus in August 2011 over political wrangling that brought the world's biggest economy to the brink of default. The agency slapped on a negative outlook, as well, as a warning that the country wasn't off the hook yet.

Moody's statement of Thursday made clear that agency, as well, is keeping a close eye on budget deals that could cut into - or boost - the stock of government debt compared to the economy as a whole.

"It is still too early to tell when a clearer picture of the medium-term deficit and debt trajectories will emerge, but we will reassess the rating (Aaa, negative outlook) during the course of this year," the statement said.