With Canada’s federal deficit nearing a 20-year high amid government relief spending during the COVID-19 pandemic, the country’s top AAA credit rating could be put in jeopardy, according to Macquarie Capital Markets.
The federal deficit is currently near a 20-year high of $400 billion and could reach $1 trillion as the government extends emergency programs to help mitigate the impact of the coronavirus shutdowns. Add in provincial deficits, and the deficit rises to about $500 billion, or net debt of 90% of the nation’s output in 2020-21, Macquarie Capital said.
"These figures may catch the eye of rating agencies and could jeopardize Canada’s AAA rating particularly if the economy continues to underperform in 2021 and beyond," wrote Macquarie Capital in a report.
The budget deficit of Ontario, the world’s largest sub-sovereign debt issuer, will be more than double the latest official government projections as its economy contracts 9% in 2020 from the coronavirus shutdown, the Financial Accountability Office of Ontario, a provincial fiscal watchdog, said earlier this week.
Quebec, which was running surpluses before the COVID-19 crisis, said it is on track to post a budget deficit between $12 billion and $15 billion and it will need as long as five years to balance its book again, the province’s Finance Minister Eric Girard said Wednesday.
Meanwhile, Parliamentary Budget Officer Yves Giroux said Wednesday that it's "not unthinkable" that federal debt could reach $1 trillion during the current fiscal year as Ottawa’s economic response to the COVID-19 pandemic continues.
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