Canada’s provinces saw their credit trends deteriorate in fiscal 2004 as many provinces saw budgetary deficits widen following several years of balanced positions, ratings agency Standard & Poor’s said today.

In its Public Finance Report Card, S&P noted that fiscal 2004 has been a challenging year for the provinces given the protracted nature of the slowdown in personal and corporate income tax revenues that had begun to take hold in 2000. As a result, six out of 10 provinces posted wider deficits in fiscal 2004 after recording deficits in fiscal 2003.

Most provinces continued to grapple with nearly flat or declining overall revenues alongside persistent spending pressures on a number of fronts, including health care, education, and infrastructure, S&P noted.

“We believe that the steps taken to date by provinces are sufficient to result in a potential improvement in provincial budgetary balances in fiscal 2005,” said Standard & Poor’s credit analyst Mario Angastiniotis. “Nevertheless, sustained deficit financing might suggest that Canadian provinces collectively are facing a structural rather than cyclical problem, which would require additional corrective actions before their deficits are eliminated.”

Despite this deterioration in provincial finances, the collective credit quality of the Canadian provinces remains strong, the rating agency finds. “In the global context, most provinces possess considerable financial strength, which is the result of large natural resource endowments, improvements in their financial management and budgetary practices in the past 10 years, and their relatively good budgetary performances,” S&P said. “Another important credit feature that increasingly favors the Canadian provinces, compared with many of their global peers, is the improved comprehensiveness and transparency of their financial statements.”

S&P noted that many provinces are moving toward incorporating the financial results of related public sector entities, such as schools and hospitals, in their financial statements to provide a more comprehensive picture of their financial positions.