Ontario Downgraded to Aa2 on Growing Debt Burden, Moody’s Says
26 April 2012
, by Cecile Gutscher (Bloomberg) http://www.bloomberg.com/news/2012-04-26/ontario-downgraded-to-aa2-on-growing-debt-burden-moody-s-says.htmlOntario’s credit rating was downgraded by Moody’s Investors Service as stalling economic growth puts its debt-reduction targets out of reach
The rating was reduced to Aa2 from Aa1 and the outlook revised to stable from negative.
The downgrade brings Moody’s assessment closer to Standard & Poor’s, which previously rated Ontario two steps lower.
“There are significant risks surrounding the province’s ability to achieve their medium-term fiscal targets and stabilize and then reverse the recent accumulation in debt,” Moody’s analyst Jennifer Wong said in a report. Canada’s most populous province is struggling to contain a C$15.3 billion ($15.5 billion) budget shortfall by freezing public-sector wages and levying a 2% surtax on wage- earners of C$500,000 or more
. Debt of C$257.5 billion is expected to peak at a record 42% of GDP by 2015
, according to Ontario’s budget released March 27.
The ratio was 27% of GDP in 2007-08.
“Expense targets appear particularly ambitious” in light of the “subdued growth outlook,” Moody’s said.
Health-care needs may swell with demographic pressures building on the province’s biggest expense item, according to the report.
The downgrade comes after Ontario’s outlook by S&P worsened yesterday. S&P put a negative outlook on its assessment
, citing “challenging cost-containment targets in the next one-to-two years.”
S&P rates the province at AA-, now a level lower than Moody’s.