Moody's downgrades Ontario's credit rating

[April 27, 2012]  TORONTO (AP) -- Credit rating agency Moody's on Thursday downgraded Ontario's debt, a day after Standard and Poor's revised its outlook on the Canadian province from stable to negative.

Ontario is facing a CA$15 billion (US$15.24 billion) deficit this year. The Liberal provincial government introduced a budget last month outlining their plan to rebalance the books in 2017-18, which includes limiting spending increases to just one percent a year for the next five years.

Moody's said it is concerned about the government's ability to rein in spending and achieve a balanced budget by 2017-18. The agency downgraded the province to Aa2 from Aa1, affecting CA$202 billion (US$205. 26 billion) in debt securities.

"The downgrade of Ontario's rating reflects the growing debt burden and the risks surrounding the province achieving its medium-term fiscal plan given the subdued growth outlook, extended timeframe back to balance and ambitious expenditure targets," Jennifer Wong, Moody's lead analyst for Ontario, said in a statement.

The province's expense growth targets appear to be "particularly ambitious," given the average seven percent annual growth in expenses over the last five years, Moody's said.

Canada's federal government, in better shape than the country's most populous province, has said it will balance the country's books by 2015.

The Progressive Conservatives, who voted against Ontario's budget, warned the Moody's downgrade would have major consequences for a province that's already mired in debt.

"It means that $202 billion in paper -- which means Ontario debt -- could be affected very shortly by higher interest rates, and therefore larger cost and a larger piece of the budget which has not been allocated for it," said Tory finance critic Peter Shurman.

But Ontario Finance Minister Dwight Duncan said the downgrade won't have a significant impact on the province's finances.

"Both the primary and secondary markets for our bonds are very healthy. We're still in the top echelons of credit ratings, so no, we're not worried about that."

The new Aa2 rating is higher than what other agencies have set, he said.

However, if Ontario's credit rating slips below double A in a year or two, it will become more difficult to borrow money, Duncan said. The province pays about CA$10 billion (US$10.16 billion) a year to service its debt.

[Associated Press]

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