Standard & Poor’s rating agency upgraded the long-term outlook on America’s credit rating from negative to stable, citing debt reduction through tax hikes and expenditure cuts and increasing private-sector contributions to growth.
The rating agency reaffirmed the country’s AA+ long-term and A-1+ short-term sovereign credit rating Monday, leaving the top-shelf short-term credit rating unchanged.
S&P expects the government deficit to fall to about 6 percent of gross domestic product this year, down from 7 percent in 2012, and to slightly less than 4 percent in 2015.
The agency said credit strengths include a resilient economy, monetary credibility and the U.S. dollar’s status as the world’s reserve currency. The country’s weaknesses include its fiscal performance, debt burden and the ineffectiveness of fiscal policy-making.
“We view U.S. governmental institutions (including the administration and Congress) and policymaking as generally strong, although the ability of elected officials to address the country's medium-term fiscal challenges has decreased in the past decade due to what we consider to be increased partisanship and fundamentally opposing views by the two main political parties on the optimal size of government,” the agency wrote in a statement, referencing recent budget policy impasses.
However, the agency says it sees “tentative improvements,” including the 2012 year-end deal on the fiscal cliff that allowed for fiscal tightening and the expiration of tax cuts on high-income earners.
“Although we expect some political posturing to coincide with raising the government's debt ceiling, which now appears likely to occur near the Sept. 30 fiscal year-end, we assume with our outlook revision that the debate will not result in a sudden unplanned contraction in current spending — which could be disruptive — let alone debt service,” the agency wrote.