A congressional watchdog had repeatedly cautioned lawmakers about the nation’s spending and debt levels. Recently, Fitch Ratings, a major credit rating agency, downgraded the United States government’s credit rating from AAA to AA+. This decision was based on several factors, including the high national Debt, ongoing deficits, and a perceived “erosion of governance” in the country.
Fitch explained that there had been a steady decline in governance standards over the past two decades, particularly concerning fiscal and debt matters. Political standoffs over the debt limit and last-minute resolutions diminished fiscal management confidence. Furthermore, the government lacked a medium-term fiscal framework, which most other countries have, and had a complex budgeting process.
These issues, combined with economic shocks, tax cuts, and new spending initiatives, led to increasing debt levels over the last decade. Additionally, little progress has been made in addressing medium-term challenges linked to rising social security and Medicare costs due to an aging population.
Following Fitch’s announcement, Treasury Secretary Janet Yellen criticized the downgrade as “arbitrary and based on outdated data.” Notably, in 2011, S&P Ratings had also downgraded the U.S. government’s credit rating by one notch, while Moody’s was the only one of the big three that had maintained the top-level AAA rating.
The government’s own agencies have also raised concerns about federal spending and Debt. In February, the U.S. Government Accountability Office’s audit stated that the federal government was on an unsustainable long-term fiscal path.
By the end of fiscal year 2022, Debt held by the public was approximately 97% of the gross domestic product (GDP). The U.S. debt is projected to grow faster than the economy, with Debt held by the public estimated to reach a historical high of 106% of GDP within a decade. According to the Government Accountability Office, if revenue and spending policies remain unchanged, this ratio could surpass twice the size of the economy by 2051.
The International Monetary Fund’s data from 2021 showed that the United States debt as a percentage of GDP was 106%. Compared to other countries, some of which had higher debt-to-GDP ratios in 2021, the U.S. ranked below countries like Japan (221.32%), Greece (212.4%), and Sudan (181.97%).