Moody's Investors Service announced Thursday afternoon that it has downgraded the province of Ontario's issuer and debt rating from Aa2 with positive outlook to Aa1 with a stable outlook due to lack of economic growth and burdensome debt.
One day after Standard & Poor’s downgraded Ontario’s credit rating from stable to negative, credit rating agency Moody’s downgraded Ontario’s debt shortly after markets closed Thursday that will affect $202 billion in debt securities.
The Canadian province’s rating was reduced from Aa2 to Aa1 and the outlook was changed from negative to stable. Moody’s made the downgrade because of debt totals, a stalling economy and risks to the Ontario’s medium-term fiscal plan.
“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, Moody's Assistant Vice President and lead analyst for Ontario.
It also noted that there is little chance the rating could improve any time soon. However, if the province can balance the budget and meet its projected targets then it “could put upward pressure on the rating.”
Ontario Progressive Conservative Finance Critic Peter Shurman issued a statement immediately following the news, in which he called it “catastrophic news for Ontario” and the downgrade “confirmed our fears.”
“The consequences of this are very real and very troubling for our province. This will drive up interest rates and increase the cost of servicing our $280 billion debt,” said Shurman. “Every one per cent increase in interest rates will cost our province an additional $500 million.”
Ontario New Democratic Party leader Andrea Horwath
The downgrade comes as the Dalton McGuinty’s Liberal government passed its budget 52 to 37. Ontario faces a $15.3 billion budget deficit, but Finance Minister Dwight Duncan said Queen’s Park will have a balanced budget by 2017-2018.
There was concern among the Grits that an election would be held six months after the last one if Andrea Horwath and the New Democrats didn’t vote for the budget. Although much of the NDP’s demands were met, such as a two percent tax levied on incomes more than $500,000 and an increase in welfare and disability support payments, the NDP abstained from the final vote.
“We’re showing the people of this province that we’re willing to make minority government work but we’re also showing them the sort of Ontario we want to build,” said Horwath in a press release. “This is not the Budget I would have introduced as Premier, but I feel we serve people better by getting to work here in the Legislature than by chasing votes in an election.”