What is Fitch’s meaning of Downgrade ?

Recently, Rating agency ‘Fitch’ downgraded the United States of America’s rating to ‘AA+’ form ‘AAA’ – a rating that it has been holding at the agency since 1994. This was the first major downgrade for the country since Standard & Poor’s actions in 2011. Fitch argued the downgrade cumulatively reflected the expected fiscal deterioration over the next three years, ‘High and growing’ general government debt burden and the ‘erosion of governance’ in comparison to similarly rated peers over the last two decades.

Meaning of Downgrade?

Before moving to the downgrade, it is pertinent to note that rating agencies are institutions institutions that assess the creditworthiness or financial capability of a region, country, its institutions or individual organisations. They assess its ability to meet future payment obligations – particularly important for those making investment decisions.

Fitch rates credit quality from AAA (Its highest rating) to ‘D’ (Lowest Rating). AAA is assigned to entities with ‘exceptionally strong capacity for payment of financial commitments’. Important to note, both reflect strong profiles – varying only on a comparative basis.

Fitch expects the general government deficit (Balance of income and expenditure) to rise to 6.3% to the GDP in 2023 from 3.7% in 2022. Moreover, it held that over the next decade, higher interest rates and rising, debt would translate to an increased interest service burden.

Source : The Hindu

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