With an election on the horizon and the Ontario government’s recent budget in doubt as a result, Fitch Ratings Wednesday affirmed its ‘AA’ rating on the province, but maintained its negative outlook.
The rating agency says that it plans to review Ontario’s ratings later this summer after the June 12 elections are held, and a final budget for fiscal 2015 is acted upon by a newly constituted parliament. That review will be based on the final results for fiscal 2014, the budget for 2015, and the province’s long-term plan for restoring fiscal balance.
Fitch notes that the province has made positive progress on a multiyear financial consolidation plan, designed to achieve fiscal balance by fiscal 2018. “The province has demonstrated the ability to exert considerable, ongoing expenditure restraint, while largely achieving forecast revenue targets,” it says; although, it notes that the operating deficit for fiscal 2014 did increase.
“The lengthy timeframe for implementing the balance of the plan creates uncertainty as to its successful execution, and the province’s accumulated deficit and debt service at its conclusion are likely to be materially higher,” Fitch says in support of its negative outlook.
It also notes that a full fiscal recovery will require more robust economic and revenue growth, and continued expense control. And, Fitch says it believes that restraining ongoing capital spending in order to make progress in lowering the debt burden will pose a challenge.