The influential bond rating agency Moody's Investors Service has warned that it could downgrade the Province of Ontario's debt rating.
Late Thursday afternoon, the New York-based agency downgraded Ontario's debt outlook to "negative" from "stable."
Moody's said it's concerned the provincial government won't be able to meet its targets for reducing the deficit given the sluggish economy.
A downgrade would affect the government's $190-billion debt and likely increase future borrowing costs.
By changing the outlook, Moody's is essentially putting Dalton McGuinty's Liberal government on notice that if it does not get its fiscal house in order, the bond rating will change. That would mean more taxpayer money going towards interest.
"The negative outlook on the province reflects the softening economic outlook, Ontario's growing debt burden, and the extended timeframe to achieving a balanced budget," said Moody's assistant vice-president Jennifer Wong.
"If a credible plan to address the fiscal imbalance and stabilize the debt burden is not implemented in the next provincial budget, downward pressure on the province's Aa1 rating would emerge."
Government got message, finance minister says
Finance Minister Dwight Duncan said the government will meet its financial targets. The province got the message from Moody's, he added.
"It challenges us to continue to meet the targets that we have so far met," Duncan said.
The province predicted in the fall that Ontario's economy would grow by 1.8 per cent in both this year and next.
It had previously predicted a rate of 2.4 in 2011 and 2.7 per cent in 2012.
Ontario, it said, "is particularly affected by the moderation in U.S. growth."
The U.S. represents 80 per cent of the province's export markets.
The Progressive Conservatives said the Moody's announcement was proof the Liberals have mismanaged Ontario's economy.
"This is a government that has a record deficit, he's doubled the debt and Ontario now has a larger deficit than all the other provinces combined," said PC MP Monte McNaughton.
The New Democrats said Ontario's fiscal situation isn't surprising to people losing their jobs or seeing paycheques that don't keep up with the cost of living, and again called on the Liberals to cancel planned corporate tax cuts.