Moody’s Investors Service says that Canada’s AAA credit rating looks to be safe for now, but it could come under pressure longer term if the commitment to debt reduction weakens.
In a report outlining its ratings rationale for Canada, Moody’s says, “As an advanced industrial country with comparatively low debt ratios at the federal level, Canada’s ratings appear unlikely to move downward in the near future.”
It does observe that, “Over the very long term, should the political consensus on maintaining sound public finances erode and debt ratios rise again to elevated levels, the government’s rating could come under pressure.” However, the rating agency suggests that this possibility seems unlikely.
“Despite some pressures on government spending related to health care, in particular, such a scenario seems remote,” it says, adding that pressure on public finances coming from pensions is also less in Canada than in some other top-rated countries.
Canada’s existing ratings are based on its “very high degree of economic resiliency, its high government financial strength, and its low susceptibility to event risk”, it says.
In addition to weathering the financial crisis better than most developed countries, Moody’s says that, “By lessening the country’s dependence on external financing, the improvement in the balance of payments contributes to an evaluation of low susceptibility to event risk, even if, for example, the Quebec sovereignty question were to be revived.” Although it says the a revival of the sovereignty question “seems unlikely in the foreseeable future”.