Standard & Poor’s Ratings Services has affirmed its ratings, including its ‘A+’ long-term and its ‘A-1+’ short-term issuer credit ratings, on the province of Quebec, citing the province’s plans to eliminate deficits and curb debt.
Standard & Poor’s outlook on the province’s ratings is also stable. “The affirmation reflects our view of the province’s prospects for achieving a balanced budget by fiscal 2014 and its commitment to debt reduction in the medium-to-long term,” said Standard & Poor’s credit analyst Mario Angastiniotis.
S&P says that the province’s ratings are supported by its view of Quebec’s good economic growth prospects in the next two years, adequate liquidity levels, and support from the federal government. It also cites the province’s large, wealthy, and well-diversified economy, “which remains resilient in the face of continuing global economic challenges, ongoing support from the federal government, and exceptional access to capital markets”.
The rating agency notes that the tenuous recovery in the U.S., and the European sovereign debt crisis, pose risks to Quebec’s economic outlook, but it says that the government’s forecast for real GDP growth “is reasonably cautious”.
The province’s main credit challenges include the already-high debt burden and its relatively large after-capital deficits, S&P says, noting that in fiscal 2012, the province’s debt increased to about 48% of GDP.
“The stable outlook reflects our expectation that Quebec’s revenue and spending initiatives will lead to a larger operating surplus and a material improvement in the province’s after-capital deficit as a percent of total revenues in the next two fiscal years,” it says. “We also expect the province to maintain its commitment to debt reduction through additional deposits to its Generations Fund.”
S&P suggests that a return to after-capital surpluses, a decline in its debt burden, continued Generations Fund deposits, and faster economic growth in the next two fiscal years could lead to a positive outlook. But that, failing to maintain the debt reduction commitment, recording substantial operating and after-capital deficits beyond fiscal 2013, or the inability to stabilize debt burdens beyond fiscal recovery in 2014, could put downward pressure on ratings.