Moody's warns US government shutdown would be ‘credit negative’

By Ovunc Kutlu

ISTANBUL (AA) - Credit rating agency Moody's warned Monday that a government shutdown in the US would be “credit negative” for the country.

"While government debt service payments would not be impacted and a short-lived shutdown would be unlikely to disrupt the economy, it would underscore the weakness of US institutional and governance strength relative to other Aaa-rated sovereigns that we have highlighted in recent years," the agency said in a statement.

"In particular, it would demonstrate the significant constraints that intensifying political polarization put on fiscal policymaking at a time of declining fiscal strength, driven by widening fiscal deficits and deteriorating debt affordability," it added.

The rating agency said a possible shutdown would have the largest impact on entities that rely on federal funding for revenue or debt servicing payments.

In addition, some defense contractors and municipal issuers, mass transit systems, and certain municipal housing sector bonds that rely on annual federal appropriations could be affected by a government closure as well.

"The economic impact of a shutdown would likely be short-lived and concentrated in areas with a large government presence, with limited ramifications for the broader US economy and GDP growth," said the statement.

"The most direct impact would be through lower government spending, with an immediate impact on consumption and spending by affected federal workers and contractors," it added.