The province of Ontario’s credit rating outlook has been revised to negative by Moody’s Investors Service, in light of growing risks to its fiscal health.
The rating agency said that it has decided to change the outlook based on its assessment of the risks the province faces in meeting its medium term fiscal targets. “The negative outlook on the province reflects the softening economic outlook, Ontario’s growing debt burden, and the extended timeframe to achieving a balanced budget,” said Moody’s assistant vice president Jennifer Wong.
It notes that the recently revised its forecasts for provincial growth in 2011 and 2012 down, and that the provincial economy is particularly affected by the moderation in U.S. growth. It currently plans to return to fiscal balance in 2017-18. Moody’s says that the extended period of fiscal consolidation “presents an element of risk in achieving the planned consolidation path, and a risk to stabilizing and reversing the recent deterioration in the province’s financial position.”
“The slowdown in provincial economic growth presents a challenge to the already lengthy planned consolidation path, particularly given the strong expense growth seen in recent years,” it adds.
And, while it says that Ontario retains sufficient fiscal flexibility to improve its financial position, “difficult policy decisions are required”.
“We believe that increased fiscal discipline will be required to sustain debt affordability,” said Wong. “If a credible plan to address the fiscal imbalance and stabilize the debt burden is not implemented in the next provincial budget, expected in March 2012, downward pressure on the province’s rating would emerge.