Ontario’s Aa2 debt rating and stable outlook are supported by a manageable debt burden, large, diversified economy and considerable fiscal policy flexibility, says Moody’s Investors Service says in its annual report on the province.

“Ontario’s outlook is stable, reflecting positive economic fundamentals that support a broad tax base, tempered by spending pressures that are generating additions, over the medium-term, to net direct and guaranteed debt,” says Moody’s vp David Rubinoff, lead analyst for Ontario.

The province’s fiscal plan calls for a balanced budget by 2008-09 while continuing to provide increased funding for priority areas including health care, education and infrastructure.

“Attainment of the expense targets contained in the fiscal plan will present a challenge, given that growth rates experienced in recent years have been considerably higher than those included in the plan,” says Rubinoff, “however, the plan does make use of a contingency reserve, providing some added flexibility.” If the reserve is not needed, the fiscal plan could generate a balanced position by 2007-08.

The Ontario economy, generating roughly 40% of Canada’s GDP, provides an abundant tax base to support government requirements. Per capita income has long exceeded the Canadian average, and Ontario regularly outperforms Canada by many economic growth measures. In 2005, the province recorded real GDP growth of 2.8%, following 2.7% the previous year.