Debt Agreement Is ‘Credit Positive’ for U.S., Moody’s Says

The U.S. government’s borrowing-limit agreement includes “credit-positive elements” for its Aaa rating, as it showed officials will act to ensure payments to creditors and created a process that may lead to debt reduction, according to Moody’s Investors Service.

“Although the existence of the debt limit is a negative for the country’s debt management and for financial markets, the government and politicians will act to protect the ability of the government to meet its obligations,” Steven Hess, Moody’s senior vice-president and lead sovereign analyst for the U.S., wrote today in a report.

The ratio of public debt to gross domestic product is forecast to fall to 74.6 percent in 2015 after peaking next year at 76.2 percent, according to a Congressional Budget Office forecast in May.

“Our evaluation of the creditworthiness of the U.S. government is based on long-term considerations and the debt trajectory,” Moody’s said. “For the next few years, the debt trajectory is relatively favorable.”

A stalemate over U.S. fiscal policy that partially shut the government for 16 days ended yesterday after Congress passed a bipartisan accord to avert default.

‘Debt Trajectory’

Washington’s focus now shifts to a new series of deadlines -- the first for budget negotiations with a Dec. 13 target -- that set up more rounds of political combat over taxes and spending on programs including Social Security and Medicare. The deal funds the government at Republican-backed spending levels through Jan. 15, and suspends the debt limit through Feb. 7.

“There is a possibility, although we do not give it a high probability, that reforms to entitlement programs, such as Social Security and Medicare, could be included in these negotiations,” Moody’s said. “Such programs are a very substantial portion of federal-government spending. As a result, measures to address these programs could have a positive effect on the long-term debt trajectory. At this stage, we do not think this is a likely outcome.”

The U.S.’s AAA credit grade was placed on rating watch negative on Oct. 15 by Fitch Ratings, which cited the government’s failure to raise its borrowing limit as the Treasury’s deadline neared. Standard & Poor’s stripped the U.S. of its top credit ranking on Aug. 5, 2011, on Washington gridlock and the lack of an agreement to contain its growing ratio of debt to gross domestic product.

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