Several Canadian provinces are lurching toward "unsustainable finances," according to a new study that warns of severe ramifications.
Done by San Francisco consultant Marc Joffe of Public Sector Credit Solutions, and released today by the Macdonald-Laurier Institute, it warns Canadians of the possibility of a euro-style debt crisis
"Canadians may be too complacent if they think that the debt crisis wracking Europe cannot happen here," the 52-page study warns.
"In the medium- to long-term, public finances in several provinces are unsustainable, raising the spectre of debt crises, damaged credit ratings, and federal bailouts if corrective steps are not taken. If such crises occur, they will harm not only the provinces directly concerned, but could affect the entire economy."
It’s not overly surprising that Joffe, a former senior director at Moody's Analytics, found Ontario to be a flashpoint, with what the institute termed the "highest probability" of default in up to 20 years.
What is arguably surprising is that he found Alberta has the highest probability over a 30-year timeline, despite its solid standing now.
Quebec has the lowest risk.
"The most vulnerable in the 10-20 year window is Ontario, due to its large annual deficits," the study says.
"Alberta has the most risk at the 30-year threshold as its annual deficits swing its net financial position from a surplus to a large debt. Alberta’s risk is attributable to high deficits, the fact that its population is expected by [Statistics Canada] to age more rapidly than other provinces and because it is heavily exposed to volatile energy revenues."
Joffe found that the risks among the provinces are seemingly not reflected in what are now low and uniform long-term interest rates.
