Moody's downgrades Ontario credit rating

Moody's Investors Service has downgraded its credit rating for Ontario, a day after another credit rating agency downgraded its outlook for the province.
Moody's Investors Service downgraded its rating for Ontario, just a day after Standard and Poor's downgraded its outlook for the province. Finance Minister Dwight Duncan issued a statement on the rating downgrade after the close of markets on Thursday. (CBC)

Moody’s Investors Service has downgraded its credit rating for Ontario.

The credit rating agency announced Thursday that it downgraded the rating to AA2 with stable outlook, down from AA1 with negative outlook.

Moody’s said the government's targets for reining in spending appear "particularly ambitious" and there is a risk the province will not get rid of its $15-billion deficit as scheduled, five years from now.

"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," said Jennifer Wong, the lead analyst for Ontario and an assistant vice-president at Moody’s.

It also said that there was little chance of the rating improving any time soon, though Moody's did say that if the Ontario government can meet its targets and reduce the provincial deficit that "could put upward pressure on the rating."

Also Thursday, DBRS affirmed its long- and short-term debt ratings for Ontario, while holding its outlook at stable.

The news from Moody’s comes just a day after Standard and Poor’s downgraded its outlook for Ontario.

The province's Finance Minister Dwight Duncan said that feedback the province had received from ratings agencies this week was an indication of the challenges Ontario is facing.

"What they agree on and I think we all agree is that we have challenging targets to meet and we will meet them," Duncan told reporters at Queen’s Park after the markets closed on Thursday afternoon.

While Duncan predicted the Moody’s downgrade "won’t impact us much at all," Progressive Conservative finance critic Peter Shurman called it "catastrophic news."

"The consequences of this are very real and very troubling for our province," Shurman said in a statement.

"This will drive up interest rates and increase the cost of servicing our $280 billion debt." 

However, Craig Alexander, the chief economist at TD Bank, said that the downgrade won’t drive borrowing costs through the roof.

"I don’t think that the cost of borrowing for the province will go up dramatically. But it is going to cost the government more on a going-forward basis to borrow," Alexander said during an interview with CBC Radio’s Here and Now on Thursday afternoon.

And that means that there will be more money set aside to pay for "the previous debt that’s been accumulated," instead of for programs and services that benefit Ontarians, he said.

Credit ratings by province

Moody'sDBRSStandard & Poor's
Newfoundland and LabradorAa2A+
Nova ScotiaAa2AA+
Prince Edward IslandAa2A (low)A
New BrunswickAa2A (high)AA- (outlook negative)
QuebecAa2A (high)A+
OntarioAa2AA (low)AA- (outlook negative)
ManitobaAa1A (high)AA
British ColumbiaAaaAA (high)AAA

(Source: Agency websites)