Moody’s negative outlook on Ontario

Moody’s has assigned a negative outlook to Ontario:

Moody’s Investors Service has today changed the outlook on the Province of Ontario’s debt and issuer ratings to negative from stable, and at the same time affirmed the Aa2 ratings. This affects approximately CAD 250 billion in debt securities. Moody’s P-1 rating on Ontario’s commercial paper program remains unchanged.

The change in the outlook reflects Moody’s assessment of risks surrounding the province’s ability to meet its medium term fiscal targets. After several years of weak to moderate economic growth, and higher than previously anticipated deficits projected for the next two years, the province is facing a greater challenge to return to balanced outcomes than previously anticipated. Although the province has exceeded fiscal targets in recent years, consolidated deficits have shown little change over the period 2011/12-2013/14, averaging -9.9% of revenues. The required revenue growth, in an environment of continued slower than average economic growth, and necessary operating expense control to achieve fiscal targets will require a considerable shift from recent trends. The province also continues to face large, ongoing capital expenditures which also places pressure on the province’s fiscal position.

Ontario’s rating could be downgraded if the province fails to provide clear signals of its ability and willingness to implement the required measures to redress the current fiscal pressures. Furthermore, if medium-term debt affordability were to deteriorate due to higher-than-expected increases in debt levels or a significant rise in interest rates, the province’s fiscal flexibility would be reduced, exerting downward pressure on the rating.

The outlook could return to stable if the province demonstrates through concrete measures that it will be able to achieve the very constrained expenditure growth rates and expected revenue growth over the term of its fiscal plan.

Oh well. I’m sure the new Ontario Retirement Pension Plan will be a big investor in Ontario bonds.

The political response is standard:

But top cabinet ministers said they were unconcerned about the note from Moody’s.

“The bankers aren’t freaking here,” Finance Minister Charles Sousa said as he headed into a cabinet meeting at Queen’s Park Thursday. “We have controlled our spending, we have taken the necessary steps and we’re not done just yet. We’re still finding more savings in the system.”

Deputy Premier Deb Matthews , who was appointed President of the Treasury Board last week with the task of balancing the budget in three years, brushed off Moody’s warning and said another credit downgrade would not be particularly expensive.

via July 3, 2014 « PrefBlog.


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