S&P Global Ratings has maintained its AAA rating on Canada despite the country’s historic debt levels coming out of the COVID-19 pandemic.
In a new report, S&P said it was affirming its top-notch rating with a stable outlook because "Canada's public finances were well positioned entering the pandemic, enabling a strong policy response to contain its negative effects without weakening sovereign creditworthiness."
The federal government in Ottawa is running historic budget deficits to offset the impact of COVID-19 on Canada's economy. The shortfall for the last fiscal year is estimated to be $354.2 billion.
While the deficit is expected to be cut to $154.7 billion in the current 2021-22 fiscal year, Ottawa has yet to announce a plan to balance the budget and is facing a debt-to-GDP ratio that is expected to reach 51.2% this year, according to the finance department.
Additionally, last week's federal budget (the first in two years) included $101 billion in new spending measures over the next three years. Finance Minister Chrystia Freeland defended her government's spending strategy in part by pointing to low interest rates.
In its report, S&P Global Ratings said it expects Canada's gross domestic product (GDP) to expand by 5.5% this year, before slowing to gains of 2.4% next year and 2.8% in 2023. By contrast, the Bank of Canada is forecasting growth of 6.5%, 3.7% and 3.2% over the next three years.
Despite its steady view on Canada, S&P warned on Monday that it could potentially downgrade the country's credit rating in the next couple of years if the federal government's weakened fiscal health becomes "significantly more severe and prolonged than we anticipate."
Related Stories
