The fiscal discipline developed by Canada’s 10 provincial governments over the last decade is not about to be reversed by the current economic uncertainty and ongoing spending pressures, says Moody’s Investors Service in a special report released Tuesday.

In its annual report on the economic health of the provinces, Moody’s indicated that, while provincial governments will continue to be challenged by spending pressures and limited revenue growth, the fiscal discipline developed over the past several years will be maintained.

Moody’s says that it expects budgetary balances to lead to improved debt profiles and, hence, increased provincial financial flexibility. “Moody’s does not expect to see a return to the laissez-faire attitude toward deficit financing that existed in Canada in the 1980s and early 1990s,” says Moody’s vice president David Rubinoff, author of the report. “Canadian provincial governments are maintaining their focus on prudent economic and revenue forecasting and they realize the need to control expenditure growth.”

The firm says that it expects the sector’s aggregate budgetary position to remain balanced, or even slightly positive, over the medium term. Still, challenging economic conditions and ongoing spending pressures are having a negative effect on the fiscal position of several provinces, says the rating agency report. Moody’s anticipates that debt reduction by most of the provinces will likely be limited for the near term but that budgetary balances will lead to improved debt ratios over the coming years, effectively increasing financial flexibility for the provinces.

“The much-improved fiscal framework and longer-term economic fundamentals provide a sturdy operating platform to withstand external economic shocks,” says Rubinoff. “And, having dealt with spending pressures in the past, the provinces are well equipped to meet these challenges.”