Fitch Ratings lowered the US government’s credit rating due to rising federal, state, and municipal debt and “steady deterioration in standards of governance” over the previous two decades. US credit ratings have dropped twice in history.. On Tuesday, the rating was downgraded from AAA, the highest possible rating, to AA+. Even with the new rating, investment grade is still quite close. Let’s examine how the Fitch ratings impact a country’s economy.
Fitch ratings: What do they mean?
Fitch Ratings offers a broad assessment of a country’s economic situation. Its ratings are prospective credit evaluations on assets that take into account the risk of default. Investors, middlemen like investment banks, debt issuers, and companies and corporations all utilize Fitch ratings. High Fitch ratings indicate that there are many opportunities for investment and that a nation may see growth.
Over time, a Fitch downgrade (a lower credit rating) might increase the cost of the government’s borrowing. A lower Fitch rating is something that no country wants. It makes large-project financing harder. On Fitch’s website, “the rating process typically begins when an issuer, sponsor/arranger, underwriter, or (in any of these cases) its agent contacts a member of Fitch’s Business and Relationship Management (BRM) group with a request to engage Fitch to provide a credit rating.”
How are Fitch Ratings evaluated?
There are several indices, like as AAA, AA, BBB, etc., to classify a country’s economy. For instance, India’s Fitch rating is ‘BBB-‘, which denotes a stable outlook and is based on the country’s strong growth and stable external finances.
In terms of investment
Long-term credit ratings are given by Fitch Ratings on an alphabetical scale from “AAA” to “D.” Fitch utilizes intermediate +/ modifiers for each category between AA and CCC, just as the rating agency S&P. It can be categorized as A+, A, A, BBB+, BBB, BBB, and so on.
Ratings and what they signify
According to the rating agency AAA, the economy is performing incredibly well and is dependable and steady.
AA: Slightly more dangerous than AAA
A: A nation’s finances may be impacted by changing economic conditions.
BBB: Companies in the middle class that are currently satisfactory.
investment grade not
According to this, the economy is unstable and more susceptible to change.
B: Investors must maintain vigilance since national financial conditions can change dramatically.
CCC: It denotes that a country’s economy is now fragile and relies on favorable economic conditions in order to fulfill its obligations.
CC: The economy is quite susceptible and the bonds are exceedingly speculative with this grade.
C: This grade is not desirable for any country and signifies that the economy is extremely fragile, maybe insolvent or in arrears but nevertheless making payments on commitments.
D: The economy typically defaults on most or all of its commitments, and this rating has defaulted on obligations.
Conclusion:-
The credit rating of the US government has been reduced by Fitch Ratings for the second time in the country’s history. The updated rating is AA+, which is still significantly above investment grade but one notch below AAA. Fitch ratings offer a comprehensive assessment of a country’s economic prospects, taking into account investment possibilities and default risk. Wide investment prospects and growth potential are indicated by high Fitch ratings. No country wants a lower Fitch rating since it makes it more difficult to get investment and loans for significant projects and might result in higher borrowing costs for the government. Indicators that classify an economy’s long-term credit ratings, such as AAA, AA, and BBB, are used to evaluate Fitch Ratings. The ratings employ intermediate +/ modifiers for each category between AA and CCC and are given on an alphabetical scale from “AAA” to “D.”
