Standard & Poor’s Ratings Services Tuesday affirmed its ‘AAA’ sovereign credit rating on Canada, citing its solid political and economic condition.

“The ratings on Canada reflect Standard & Poor’s opinion of the sovereign’s superior political and economic profile and strong flexibility and performance profile,” said Standard & Poor’s credit analyst Nikola Swann. The rating outlook is stable.

“Canada’s superior political and economic profile rests, among other factors, on its policymaking and political institutions, which we see as highly effective, stable, and predictable,” Swann said. He noted that Canadian authorities have a strong track record in managing past economic and financial crises and delivering economic growth, and that Canadian governments have demonstrated a willingness to implement reforms to ensure sustainable public finances.

S&P said that it sees Canada’s financial flexibility and performance as strong, overall. “We expect Canada’s general government deficit to decline steadily in the medium term from its current level of near 5% of GDP, shrinking to 2% of GDP by 2014, and continuing toward balance in subsequent years, with net general government debt to GDP leveling off at about 36% in 2014,” Swann stated.

The greatest potential risk to Canada’s external position would be a deterioration of the Canadian financial sector’s domestic or foreign loan books that raised external funding costs, the rating agency said. However, it also said that it views this risk as remote.

Another key risk is the fact that Canada is highly dependent on the U.S. economy. S&P’s base case is that the U.S. economy will continue to grow weakly, but avoid an extended double-dip recession, which, it says, would sustain Canada’s principal source of external demand; and also that inflation expectations will remain well anchored; that fiscal deficits will slowly decline toward balance; and that real per capita growth will match or exceed that of other G7 governments.

“Given Canada’s strong starting position, a combination of increased political uncertainty and weaker fiscal or external outcomes would be necessary for downward pressure to build on the rating,” Swann concluded.