TORONTO—Moody’s Investors Services dealt deficit-plagued Ontario a blow Thursday, putting the province on a so-called credit watch without downgrading the province’s credit rating.
The New York-based bond rater said it revised its outlook on about $190 billion of provincial debt to negative from stable.
Moody’s said the change stems from concerns about the province’s ability to meet its medium-term fiscal targets given the recent economic slowdown and the resulting risks to its ability to stop accumulating debt.
“The negative outlook on the province reflects the softening economic outlook, Ontario’s growing debt burden, and the extended time frame 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.”
Finance Minister Dwight Duncan said because the agency put the province on a credit watch, but did not lower its credit rating, it will not cost the government more to borrow money or service its debt.
“That is not a downgrade,” he said. “This does signal that they will continue to watch us carefully.”
The minority government has so far been able to meet its targets for reducing the $16-billion deficit by 2017 and will continue to hit short and medium-term targets, Duncan said.
“They’re very clear that in the budget we have to show we’re on target. We can’t miss targets on deficit,” he said. “It challenges us to continue to meet the targets that we have so far met.”
Canada is also set to face spending restraints to get deficits under control because the economy is projected to grow less than two per cent this year.
Ontario is particularly vulnerable to economic headwinds south of the border because ifs manufacturing sector—mainly the auto industry—is so dependent on the slowing U.S. economy.