U.S., Britain are warned on debt

LONDON - The United States and Britain must act soon to get their public finances in order if they want to avoid threats to their top triple-A credit ratings, a leading credit-ratings agency said yesterday.

In an assessment of eight triple-A countries, Moody's Investors Services said the public finances in both countries were deteriorating considerably and may therefore "test the Aaa boundaries" in the future.

Both the United States and Britain are considered to have "resilient" triple-A ratings, according to Moody's, against the more solid "resistant" top ratings for the others it assessed in its quarterly report - Germany, France, Canada, Switzerland, Luxembourg, and New Zealand.

However, Moody's said both the United States and Britain had an "adequate reaction capacity" to rise to the challenge.

A triple-A rating is the highest, and it means the countries receiving it can borrow money at relatively low interest rates because their risk of default is slim.

Moody's report comes a day before British finance minister Alistair Darling delivers his latest projections about the country's debt. Analysts expect that he will predict that Britain will end up borrowing a staggering $310 billion in fiscal year 2009-10, which is equivalent to more than 13 percent of the country's gross domestic product. Meanwhile in the United States, the deficit for the 2009 budget year, which ended in September, hit a record $1.42 trillion, or just under 10 percent of the country's gross domestic product.

The administration in August projected a slightly higher deficit for the current year. However, there are mounting hopes that the projected cost of the government bailout program will be $42 billion, or about $200 billion less than anticipated, easing some of the fiscal pressures.

Overall, Moody's said that all 17 triple-A countries had seen pressure on their finances but that none faced an "immediate" threat to their ratings.

"The next year or two will show whether growth potential has been structurally eroded or whether a robust yet sustainable recovery is possible," said Pierre Cailleteau, managing director of Moody's sovereign risk group and lead author of the report.

"Next year, Aaa governments with stretched balance sheets will find themselves under pressure to announce credible fiscal plans and, if markets start losing patience, to start implementing them," he said.