In its quarterly report on sovereign debt, Moody’s, a credit rating agency, has expressed concern about the impact of rising government debt on sovereign ratings.
While stating that there is “no imminent rating pressure” on the triple-A rated government securities, Moody’s said the margin for error on government debt has substantially diminished.
If stimulus measures are not withdrawn in a timely manner, the interest rates could rise “with more abrupt rating consequences a possibility.”
Exports cannot be seen as an alternative to domestic demand for improving the health of the economy.
“Demand from the emerging world undoubtedly provides some support, but cannot on its own compensate for weak domestic demand,” Moody’s said.
Governments which do not wish to see their debt downgraded will have to cut back on spending and make harsh decisions.
The report notes that U.S. debt service costs could rise from around 7 percent in 2009 to 11 percent in 2013 under Moody’s baseline scenario.