Washington: Moody's Ratings on Friday downgraded the U.S. long-term issuer and senior unsecured ratings from Aaa to Aa1, citing increasing government debt and escalating interest payment ratios. The agency also adjusted the outlook for the U.S. sovereign rating from negative to stable.

According to Namibia Press Agency, this one-notch downgrade reflects a significant rise in government debt and interest payment ratios over the past decade, which now surpasses levels of similarly rated sovereigns. In November 2023, Moody's Ratings had already shifted the outlook from stable to negative.

The agency highlighted the ongoing inability of successive U.S. administrations and Congress to agree on measures to curb large fiscal deficits and rising interest costs. Current fiscal proposals are unlikely to achieve substantial multi-year reductions in mandatory spending and deficits. Over the next decade, Moody's Ratings anticipates larger deficits as entitlement spending increases while government revenue remains largely unchanged.

Persistent large fiscal deficits are expected to elevate the government's debt and interest burden. U.S. fiscal performance is predicted to deteriorate relative to its historical performance and compared to other highly-rated sovereigns.

The downgrade signifies the loss of the United States' last triple-A credit rating from a major ratings firm, following earlier cuts by Fitch Ratings in 2023 and S and P Global Ratings in 2011. Moody's Ratings forecasted a challenging outlook for the U.S. debt burden and fiscal conditions in the coming decade.

Without adjustments to taxation and spending, the U.S. is projected to face limited budget flexibility, with mandatory spending, including interest expenses, rising to approximately 78 percent of total spending by 2035, up from about 73 percent in 2024. The extension of the 2017 Tax Cuts and Jobs Act could add around 4 trillion U.S. dollars to the federal fiscal primary deficit over the next decade.

Moody's Ratings projected the U.S. federal debt burden to climb to about 134 percent of GDP by 2035, compared to 98 percent in 2024. Despite high demand for U.S. Treasury assets, increased Treasury yields since 2021 have reduced debt affordability.

Federal interest payments are likely to consume around 30 percent of revenue by 2035, up from about 18 percent in 2024 and 9 percent in 2021.

In response to the downgrade, U.S. Senate Democratic Leader Chuck Schumer called it a wake-up call for former President Trump and Congressional Republicans to cease pursuing deficit-expanding tax policies.