NEW YORK, Jan. 15 (Xinhua) -- Failure to raise the debt ceiling in time will prompt a review of the U.S. sovereign rating and the current negative outlook of "AAA" rating may be downgraded, said Fitch Ratings on Tuesday.
Fitch said in a statement that if an agreement can't be reached, the Treasury would be forced to immediately eliminate the deficit, and the fiscal contraction would be twice as big as the recently avoided "fiscal cliff."
On Dec. 31 2012, U.S. federal government debt reached the statutory debt limit of 16.394 trillion dollars. If the debt ceiling crisis which occurred in August 2011 repeated, Fitch would need to review its current assessment on U.S. sovereign status.
However, recent history suggests that a short-term solution will be agreed and the risk of a U.S. sovereign default remains extremely low.
Moreover, the U.S. AAA status is underpinned by the country's relative economic dynamism and potential as well as diminishing financial sector risks.
The rating agency said that in the absence of an agreed and credible medium-term deficit reduction plan that would be consistent with sustaining the economic recovery and restoring confidence in the long-run sustainability of U.S. public finances, the current negative outlook on the AAA rating is likely to be downgraded later this year even if another debt ceiling crisis is averted.
Fitch also warned that there is uncertainty over whether 54 billion dollars of spending cuts deferred by two months under the agreement reached to avoid the fiscal cliff on Jan. 1 will come into effect in fiscal year 2013.