DBRS Ltd. has confirmed its AAA ratings on the government of Canada, citing its credible fiscal recovery plan and strong track record of fiscal discipline.
In a report issued Tuesday, the rating agency says that Canada’s debt burden is expected to remain “very manageable”. Moreover, it notes that Canada also has the flexibility to manage downside risks, such as the ongoing European sovereign debt crisis and a slow economic recovery in the United States, without damaging its strong credit profile.
DBRS estimates that the government’s deficit was $24.9 billion for 2011-2012, which represents a notable improvement year-over-year and equals just 1.4% of GDP. For the current fiscal year, a deficit of $21.1 billion, or 1.2% of GDP, is anticipated, followed by a gradual return to balance by 2015-2016, it says. And, DBRS suggests that it could return to balance a year earlier than budgeted.
Canada’s “very modest deficit outlook” makes it stand out among its peers, and it also has track record of exceeding fiscal targets, DBRS notes.
The debt-to-GDP ratio (as measured by DBRS) remained unchanged in 2011-2012 at 36%. Although it cautions that the ratio could increase slightly in 2012-2013, before beginning to trend downward. Canada’s debt burden is also considered to be very manageable and compares favourably among G7 peers, DBRS says.
“Nevertheless, Canada will need to remain vigilant in the face of challenging economic conditions to ensure that fiscal targets can be met and its strong credit profile maintained,” it concludes.