Moody’s Investors Service says the A1 rating and positive outlook for Quebec’s debt reflects an improvement in the province’s financial performance over the past five years and a gradual downward trend in its debt burden.

In its annual report on the province, Moody’s says that, “the balanced budgets of recent years were a significant reversal from a prior era of large, recurring deficits.”

The improved results have reduced, but not eliminated, the need for new borrowing because Quebec must cover the difference between its budget results and actual cash requirements, Moody’s notes.

Debt has also grown because of the borrowings of Financement-Quebec, a separate entity that borrows for educational and health units outside the province’s budgetary framework, Moody’s says. Nonetheless, a slower rate of debt growth combined with economic expansion has led to an improvement in Quebec’s debt burden.

“The province’s record of balanced budgets (when the use of reserves are included) will be tested next year when several temporary measures used to balance this year’s accounts will have expired,” says Moody’s. “While this presents a challenge, the government elected this year has indicated that it is committed to implementing the steps necessary to maintain a sound financial footing.”

Quebec’s ability to maintain a favorable budgetary position and ease the debt burden in coming years will be an important factor for the rating and a potential upgrade, the report noted.

The rating agency’s report is a yearly update to the markets and is not a formal action to alter the credit rating of the issuer.