Moody’s downgrades US credit rating to Aa1

Moody’s Ratings downgraded the United States’ long-term issuer and senior unsecured ratings to Aa1 from Aaa, citing a persistent rise in federal debt and interest burdens that now significantly exceed those of similarly rated sovereigns. The agency revised its outlook on the US to stable from negative.

“This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns.” the rating agency said in a statement on Friday.

The downgrade reflects more than a decade of widening fiscal deficits and limited political will to reverse the trend, Moody’s said. With entitlement spending set to rise and government revenues expected to remain flat, the agency projects the federal deficit will reach nearly 9 per cent of GDP by 2035, up from 6.4 per cent in 2024. Debt is forecast to climb to 134 per cent of GDP, compared to 98 per cent this year.

Interest payments alone are projected to consume 30 per cent of federal revenues by 2035, more than triple the 2021 level. Moody’s warned that without fiscal reforms, budget flexibility will erode as mandatory spending—including interest costs—rises to 78 per cent of total expenditure by 2035.

Despite the downgrade, Moody’s affirmed taht the US retains key credit strengths, including a large, resilient economy, an independent central bank, and the US dollar’s dominant role as the global reserve currency. These factors underpin the stable outlook and continued Aaa ceilings on local- and foreign-currency country risk.

A further downgrade could occur if fiscal metrics worsen more rapidly than expected or institutional effectiveness materially weakens. Conversely, meaningful fiscal reforms could support an upgrade.

Attribution: Amwal Al Ghad English

Subediting: Y.Yasser