Standard & Poor’s Ratings Services Wednesday revised its outlook on the province of Ontario to negative from stable on concerns about its deficit reduction plan.

S&P said the province’s main credit challenges include its continuing weak budgetary and debt metrics and its challenging cost-containment plan required to achieve budgetary balance by fiscal 2018. “The outlook revision reflects our view regarding the minority legislature’s ability to meet challenging cost-containment targets in the next one-to-two years necessary for the debt burden to peak in fiscal 2015 as planned,” said Standard & Poor’s credit analyst Mario Angastiniotis.

At the same time, S&P affirmed its current ratings on the province, citing its large, wealthy, and well-diversified economy, which continues to recover, albeit unevenly, from the recession; ongoing support from the federal government; and positive liquidity.

However, S&P notes that, given the deterioration in the global economy in the latter half of 2011, “the government has been forced to rely more heavily on spending measures in this budget to counteract potentially softer revenue growth.”

It says the cornerstones of its plan are a two-year public sector salary freeze, pension plan cost containment, some job reductions, and a number of cost avoidance measures. ” In our view, the government will need to be successful in implementing these measures in order for it to hold program spending growth to a 1% average annual rate in fiscal 2012-2015,” it says.

But the rating agency believes that it will be a challenge for any province to sustain this low growth rate in spending, “due to the substantial cost pressures in health care delivery alone.”

S&P says the negative outlook indicates that there is at least a one-in-three likelihood that it could lower the long-term rating one notch within two years. “Although we believe that the government’s fiscal plan is based on cautious near-term economic assumptions, its success is tied to significant savings measures that could prove challenging to achieve,” it concludes.