The U.S. has an unmatched debt burden, with rating agencies expressing concern over the prolonged decline in fiscal governance

(SeaPRwire) –   The U.S. has reached an unenviable position. Among developed, high-spending nations considered secure investments globally, the U.S. now leads in the magnitude of its debt burden, with the nation’s public liabilities surpassing its economic output for the first time since World War II.

On Thursday, the Committee for a Responsible Federal Budget (CRFB), a nonpartisan oversight body, reported that U.S. debt held by the public, estimated at $31.27 trillion, officially exceeded the country’s annual Gross Domestic Product (GDP) of $31.22 trillion in March. This analysis is based on recent data released by the Bureau of Economic Analysis.

The accumulation of debt carries numerous economic risks, including the potential for the cost of managing this debt to divert funds from other crucial government expenditures. Another consequence could be a decline in the nation’s formerly top-tier credit rating, which could result in increased borrowing expenses and further limitations on government spending. Following the CRFB’s announcement, a prominent global credit rating agency issued a warning about how close this scenario is to materializing.

Analysts from Fitch Ratings, a credit rating agency, cautioned in a report on Thursday that the U.S.’s credit rating—a measure of a country’s creditworthiness and its anticipated ability to repay debt—is at risk of being lowered due to its substantial debt load. Fitch currently assigns the U.S. an AA+ rating, having downgraded it from its highest AAA rating in 2023 due to ongoing political disputes over the U.S. debt ceiling that repeatedly threatened a default on debt.

“Structurally large fiscal deficits will keep the U.S.’s debt burden far above that of other ‘AA’ category sovereigns,” the analysts wrote.

The U.S. maintains its AA rating primarily due to the dollar’s status as a reserve currency, its robust capital markets, and ongoing prospects for long-term economic growth. However, the analysts warned that years of fiscal mismanagement are increasingly constraining the rating.

“The U.S.’s ‘AA+’/Stable rating already incorporates a long-running deterioration in governance, particularly in fiscal policymaking,“ analysts wrote.

Fitch forecasts a general government deficit of 7.9% of GDP for both this year and 2027. This is largely attributed to significant tax cuts enacted under the Trump administration’s One Big Beautiful Bill Act and uncertainty regarding whether tariff revenues will adequately compensate for the shortfall. The CRFB has previously estimated that President Donald Trump’s signature policy package will add $4.7 trillion to the national debt by 2035. Tariffs were expected to partially offset this debt increase, but a landmark Supreme Court ruling earlier this year against most of Trump’s tariffs could cost the government $1.7 trillion through 2036, according to the CRFB. This could potentially set the U.S. on a path to accumulating $58 trillion in debt over the next decade.

The country’s declining credit rating has tangible economic consequences. The significance of a strong credit rating lies not just in the grade itself, but in what it enables: low borrowing costs for the federal government, which in turn helps keep yields and interest rates lower throughout the economy.

As long as the U.S. can borrow at low costs, the rates for home mortgages, business loans, and corporate bonds tend to remain lower than they would be in a country with a weaker credit standing. A loss of premier rating status—or a descent into a less reliable tier—would increase the premium investors demand, leading to higher interest payments on the national debt and increased borrowing costs for households.

Fitch is not the sole agency to express concerns about U.S. creditworthiness. Last year, Moody’s downgraded the U.S. from Aaa to Aa1. The Aaa rating is reserved for the highest caliber of credit, indicating minimal risk for investors. Wealthy nations such as Canada, Australia, and several EU countries hold this classification. Countries with an Aa1 rating are still considered to have very low credit risk but are viewed as less stable and more susceptible to change. Both Moody’s and Fitch employ rating systems that are functionally equivalent.

Moody’s cited increasing fiscal deficits and rising interest expenses as reasons for its downgrade, a situation the agency does not anticipate resolving quickly.

“Over the next decade, we expect larger deficits as entitlement spending rises while government revenue remains broadly flat,” Moody’s analysts wrote. “In turn, persistent, large fiscal deficits will drive the government’s debt and interest burden higher. The U.S.’s fiscal performance is likely to deteriorate relative to its own past and compared to other highly-rated sovereigns.”