A few days after Budget 2019 was announced, an international credit rating agency has warned federal officials in Ottawa that sustained deficits will make Canada vulnerable to an economic downturn.
Fitch Ratings Inc., one of the leading international credit rating agencies, said in a news release that Canada’s debt levels are higher than other top-rated G7countries. The warning comes after Ottawa forecast a higher deficit of $19.8 billion in 2019-20 and $19.7 billion for 2021-22, before shrinking to $9.8 billion by 2023-24, in its latest budget announced on Tuesday of this week.
"Canada's gross general government debt, combining federal and provincial fiscal accounts, is higher than other 'AAA'-rated sovereigns, excepting the U.S, and remains close to a level that is incompatible with 'AAA' status," said Fitch Ratings.
Fitch Ratings added that the increased deficits remain relatively modest at less than 1% of Canada’s Gross Domestic Product (GDP), and it maintains its forecast that the government’s debt ratio will fall toward 85% of GDP over the medium-term.
A spokesperson for federal Finance Minister Bill Morneau touted that outlook in response to questions from the media about Fitch Ratings’ warning.
"The federal debt-to-GDP ratio is projected to fall in every year of the forecast horizon; and, Canada has, by far, the lowest net debt-to-GDP ratio among G7 countries," said Pierre-Olivier Herbert, while avoiding comment on the rating agency's warning that federal and provincial debt could threaten Canada's AAA rating.
