Floyd Norris, the Chief Financial Correspondent of The New York Times writes on Why and How of ‘AAA’ rating cut of the United States by S&P. He also answers various questions related to future repercussions on the US ability to pay its debt.
Q. Why did Standard & Poor’s lower the credit rating of the United States to AA+?
A. The rating agency thinks the United States has too much debt, or at least will: “Under our revised base case fiscal scenario — which we consider to be consistent with a AA+ long-term rating and a negative outlook — we now project that net general government debt would rise from an estimated 74 percent of G.D.P. by the end of 2011 to 79 percent in 2015 and 85 percent by 2021.”
There has been a series of articles and notes in different newspapers and online domains which explain the likely impact of the Emerging Nations including Developed World including the future of Dollar.
Our Central Bank, The Reserve Bank of India (RBI) also came out with a note on Recent Global Development; it stated that it has been closely monitoring the global developments and its likely impact on India in terms of liquidity, exchange rates and forex reserve portfolio which may see a flight of capital.
As Friday’s market behaviour demonstrated, India is not insulated from such developments. It may, however, be noted that in the worst phase of the recent global financial crisis, the economy grew by 6.8 per cent, suggesting high resilience emerging from domestic factors. While downside risks to growth may have increased in the wake of global developments, they are likely to have limited impact. However, the policy and regulatory framework must anticipate and be prepared to respond to turbulent financial market conditions arising out of external developments.
Fingers are crossed; the Emerging Market Economies (EMEs) are preparing themselves to avoid any likely large impact on them out of this headwind which exacerbates the global outlook.
Happy Reading!
- Amar Ranu
No comments:
Post a Comment