Fitch Ratings has said it expects U.S. defense spending levels will continue to remain “solid” in fiscal year 2017 and in the succeeding years based on the assumption that the budget caps will be overturned.
Fitch Ratings said Monday that its credit outlook for the defense and aerospace sector has been supported by a higher level of military spending in FY 2016 but cited several factors that could pose risks to its rating outlook for the sector, such as the 2016 elections, extended budget caps and political disruptions.
The credit rating agency also predicts the enacted spending of the Defense Department to increase driven by global threats and military readiness gaps across the armed forces.
Fitch Ratings also noted that a temporary continuing resolution that would allow the federal government to operate at existing spending levels is likely to occur in FY 2017 and that its potential impact on the defense sector’s credit profile would rely on the length of the CR.
The FY 2017 defense budget request for overseas contingency operations valued at $59 billion allocates funds for defense contractors but is lower from the FY 2010 budget peak during the wars in Afghanistan and Iraq, according to Fitch Ratings.
Fitch Ratings also mentioned that investment accounts such as research and development and procurement in the FY 2017 defense budget request hit $184 billion, approximately $4 billion lower than the enacted FY 2016 funds and $18 billion more than the FY 2015 appropriated funds.
The FY 2017 budget request would allocate $71 billion in R&D funds in an effort to help the U.S. achieve military advantage and pursue development work on “third offset“ technology platforms, according to the credit rating agency.
Fitch Ratings is one of the three nationally recognized statistical rating organizations designated by the Securities and Exchange Commission in 1975 and runs as a subsidiary of financial information services provider Fitch Group.