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Canada Loses ‘AAA’ Credit Rating As Federal Debt Reaches Historic Levels

Canada has officially lost its AAA credit rating.

Fitch Ratings Inc. has stripped Canada of its AAA credit rating and downgraded the country to a AA+ rating with a stable outlook. Fitch said in a written statement that it expects the federal government’s COVID-19 response measures to raise Canada's debt to 115.1% of gross domestic product (GDP) in 2020, up from 88.3% in 2019.

However, the credit rating agency said it sees Canada’s debt-to-GDP ratio stabilizing over the medium term. Since the pandemic, Canada’s AAA rating has come under the microscope as federal spending on COVID-19 aid measures climbed to more than $150 billion and pushed Ottawa’s debt load to historic levels.

In March 2019, a year before the COVID-19 pandemic took hold, Fitch released a report warning that high debt at the federal and provincial levels could soon become "incompatible" with Canada preserving its top-notch rating.

The Triple-A credit rating, which is the highest possible rating, was something Prime Minister Justin Trudeau's Liberals highlighted in their 2019 election platform and in previous budgets. Until this week, Canada and Germany were the only two G7 countries that had AAA credit ratings.

While Fitch Ratings has downgraded Canada, the two other credit rating agencies, Moody’s and Standard & Poor’s, have retained their AAA ratings on the country for the time being. Canada’s Parliamentary Budget Officer, Yves Giroux, said following the Fitch downgrade that if Moody’s and Standard & Poor’s followed suit, it would raise alarm bells about Canada’s financial stability.