Finance executives worldwide on alert about U.S. debt issues

Global finance executives are keeping a close eye on Congress and its strategy for handling the nation’s debt ceiling and spending.

A possible short-term solution could create long-term uncertainty for their businesses, a new survey of 1,300 CGMA designation holders shows.

Nearly seven in 10 (69.7%) believe that the most likely outcome of Congress’s decision on the debt ceiling will be a weaker dollar, according to the survey, released Wednesday. Almost 62% foresee a downgrade of the United States’s credit rating, and 52.8% expect to see a rise in interest rates.

Additionally, 42.7% of U.S. CGMA designation holders said their businesses are delaying hiring, and 39.3% said they are holding cash and postponing capital investment as they await clarity on the issue. About half (49.1%) say they are continuing current practices and hoping to ride out the storm while awaiting decisions on spending cuts and borrowing limits.

As the dollar is seen as weakening in the wake of congressional action, just 44% of U.S. respondents expect the dollar to maintain its spot as the world’s dominant reserve currency in 10 years. Globally, 47.7% expect the dollar to remain the dominant currency.

“The repercussions of U.S. debt ceiling and spending decisions will reverberate across the global economy and may touch many of the world’s businesses,” Barry Melancon, CPA, CGMA, CEO of the AICPA, said in a news release. “Management accountants are bracing for short- and long-term implications, even as they look for ways to make their businesses less vulnerable to the pulses of geo-political forces.”

A majority of finance executives (59.9% globally) admit that business is too easily thrown off course by short-term economic crises, but they differ on how to respond to such events. In a separate question, respondents were asked what actions their business was taking while waiting for decisions on spending cuts and borrowing limits. They could pick all strategies that applied, and nine choices got at least 10% of the votes.

The survey also showed that:

• 56.7% of respondents say their companies need to seek new ways to be resilient and less susceptible to macro-economic volatility.
• 31% believe US debt trouble will ultimately push the global economy toward recession.
• The most likely outcome of an ongoing debt crisis will be an increase in global economic uncertainty (35.3%).
• Southeast Asia received the highest percentage of votes (47.5%) among regions considered to be “safe harbors of growth and stability in 2013.” North America was second (37.4%), followed by Central and South America (27.1%), North Asia (22.4%), and the U.K. (16.5%).

“There will always be another U.S. debt crisis, Arab Spring, or eurozone disaster just around the corner,” Charles Tilley, FCMA, CGMA, chief executive of the Chartered Institute of Management Accountants (CIMA), said in a news release. “The uncertainty simply cannot drive business strategy. These ‘grey swans,’ as some business commentators have termed them, are prompting organizations to cut spending and investment at a time when innovation is absolutely vital to our economic health.”

Investor attitudes could be one reason finance executives put so much attention on events such as the U.S. debt debate. In the CGMA report, Rebooting Business: Valuing the Human Dimension, CEOs believe that investors are too focused on short-term financials rather than long-term success.

And, as evidenced by the jitters around the world, those finance executives are still sorting out the short- and long-term implications of the debt ceiling issue.

Tips for building resilience

CIMA, which partnered with the AICPA to create the CGMA designation, suggested that organizations adjust their risk radar and anticipate the impact of such scenarios on investment and future growth, offering these tips and reminders:

1. Understand your business model. What creates, and could potentially destroy, value in your business? 

2. Harness the power of transparency. Create a line of sight between capital sources and how it will be invested in the sustained success of the business, beyond the short-term.

3. Ensure robust information flows. Build confidence in the right information that drives investment and risk-mitigation decisions.

4. Go beyond defining a risk appetite. Have a risk attitude that empowers all in the business to take appropriate risks that drive growth and opportunity.

5. Be clear on the skills and talents you need now for tomorrow. Identify and close potential skills gaps you may have when considering your future business model, markets, and innovation agenda.

—Neil Amato (namato@aicpa.org) is a JofA senior editor.