Some Context Around Moody’s Downgrade Of Ontario’s Debt
Dominique Lapointe | Dec 17, 2018 12:52
Moody’s ratings services [1] As a share of GDP, those deficits would be roughly constant at 1.7% but net debt would increase to a daunting and record-high 45.2% (see Chart).
Before the downgrade, Moody’s rating of Ontario’s long-term debt was a notch above Fitch’s (AA-) and two notches above S&P (A+). The move brings all ratings closer on the credit scale, with Moody’s and Fitch’s on par and S&P a notch lower (see Table 1). The good news is that, with the credit rating outlook now stable, Moody’s sees the possibility of further deterioration in the province’s outlook only as “modest,” putting a sort of floor on the fiscal outlook.
Finally, it is possible that prior to budget 2019, Fitch ratings follows suit and proceeds to downgrade, which would bring it on par with S&P. On the other hand, the PC government has an opportunity with the 2019 budget to present a credible path towards fiscal sustainability, possibly preventing Fitch from downgrading the province (since June 2018, Fitch has a negative perspective on Ontario’s long-term debt).
With the government heavily citing the EY line-by-line review of Ontario’s expenditures in its Fiscal Update and a strong commitment to restore fiscal sustainability, we are of the view that important measures will be taken in budget 2019 in order to put the province on a credible deficit reduction path. Moreover, the very large infrastructure program elaborated by the previous government ($230 billion over 14 years starting in 2014-15) could be consolidated and largely reduce borrowing requirements in the years to come. Together, those measures would improve Ontario’s credit ratings outlook.
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