China Rating Agency Dagong Global Credit Rating Co. lowered US sovereign credit ratings in national and foreign currencies from "A-" to "BBB +". The outlook on the ratings is “negative,” the agency said.
This contrasts sharply with the position of the New York rating agencies.
Moody's Investors Service assigned the United States an Aaa rating, S&P assigned an AA + rating, Bloomberg writes.
"The deterioration in US government debt repayment sources is continuing," and this trend will be further exacerbated by the government’s massive tax cuts, Dagong said.
"The growing dependence (USA) on the debt model of economic development will continue to undermine the solvency of the federal government," experts say.
"Deficiencies in the current political ecology of the United States make it difficult to manage the federal government effectively, so national economic development is on the wrong track," the Chinese rating agency said in a statement.
"A massive tax cut directly reduces the sources of debt repayment by the federal government," said Dagong.
According to the agency’s forecast, "the US economy will grow by only 2.3% in 2018 and will grow even more slowly in subsequent years."
US President Donald Trump signed into law on tax reform in December after approving the document in both houses of Congress.
"The federal government budget revenues will continue to decline due to tax cuts, so it is expected that the ratio of budget revenues to GDP will fall to 14% in 2022, which is 3.3 percentage points less than in 2017.
The growing demand for national defense, infrastructure, and inflexible spending will make it difficult for the federal government to effectively cut budget spending, which is why the federal (US) budget deficit in 2018 and 2019 is estimated to be low. will increase to 3.9% and 4.1% respectively, "the agency’s experts noted.
Dagong’s decision led the United States rating to be on par with Colombia’s rating, which is also rated BBB +.
Dagong Private Agency, founded in 1994, is not formally affiliated with the Chinese government. It began to assign sovereign ratings in 2010 in an attempt to eliminate the monopoly of US rating agencies. This is in line with the strategy of the Chinese government to strengthen influence on the world stage.
However, as Bloomberg notes, Chinese credit rating companies have not yet won the trust of global investors because of the overvaluation they give to local bonds.
Chinese agencies rated a significant portion of local bonds with an AAA rating. This is much higher than international rating agencies usually rate Chinese companies.