Ontario’s Debt Outlook Upgraded To ‘Stable’

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By Gemma Hunt

Having been ‘Negative’ since 2014, Ontario’s Aa2 issuer and long-term debt outlooks have been bumped up to ‘Stable’. This upgrade was made by Moody’s Investor’s Service, who predict that Ontario’s debt burden will steadily improve over the coming months. Hopefully, this will allow budgets to balance and Ontario to move towards greater economic stability.

Ontario’s Debt

Debt for a state is much the same as debt for an individual – except that there are fewer options for getting out of it, and the impact affects more people. States can borrow from investors, the general public, and other such bodies in order to finance their initiatives. This is perfectly normal – indeed, it is rare to find a state which does not have some form of debt. Problems arise when discrepancies occur with repayments, interest, and total income.

Ontario currently has a rather large deficit, and an enormous debt. Repayments and interest on this costs the taxpayer money while simultaneously ensuring that there are fewer funds available for public services – not a situation which pleases many (with the exception of creditors). Debts, deficits, and budgets are major economic players, and feature frequently in political wranglings at election times. Ontario’s debt and deficit have been a thorny topic for some time – meaning that the new ‘stable’ rating will come as a welcome relief to many Ontarian public officials.

‘Negative’ And ‘Stable’

Back in 2014, Moody’s cut the credit-based outlook of Ontario to ‘negative’ from ‘stable’, jeopardising around CAD 250 million in debt securities. The decision was based upon perceived risks in Ontario’s medium-term fiscal plan. Moody’s analysts determined that Ontario would be unable to meet its fiscal targets, and unable to maintain debt repayments, as growth forecasts did not allow for the kind of revenue needed to keep up with interest. While Ontario kept its Aa2 rating (the third highest offered by the agency), the outlook was reduced. In practical terms, while Ontario’s credit rating remained the same – ostensibly giving Ontario considerable economic flexibility – cautious investors would be able to note that Ontario’s long-term outlook was not good. Potentially, this could affect future borrowing. However, Moody’s were unequivocal about the fact that this situation could go either way. Were Ontario to fail to commit to rectifying the fiscal situation, and refused to implement recommended measures to do so, the outlook (and possibly rating) would drop further. Were measures to be taken, and the fiscal situation to improve, Ontario’s outlook could once again be upgraded. The latter option occurred and, two years later, Ontario is back to ‘Stable’.

What Does This Mean For Sault?

What does this mean in practical terms for Sault? Well, ‘stable’ isn’t as fantastic as ‘good’, but it’s certainly better than ‘negative’ – as our politician’s delighted responses make clear. What an upgrade to ‘stable’ outlook essentially means is that Moody’s believes that the Ontarian economy is doing well enough to balance the books – no mean feat when you consider the fact that many entire established nations are failing to do the same. A ‘stable’ outlook also makes Ontario’s borrowing prospects more robust. While it may appear that more borrowing when we’re already in debt is a bad idea, the demands of public services often require that money be borrowed in order to do things like pay wages and provide emergency cover. No nation is entirely self-sufficient and – like it or loathe it – credit is currently what makes the world go round. Many of the Sault services upon which we rely – policing, infrastructure, healthcare and so forth – are themselves reliant upon Ontario’s ability to borrow. A better outlook means that the Ontario government are less likely to attempt deficit reductions by cutting public service budgets within Sault and other Ontario areas. On the other hand, there is a chance that taxes could be increased in order to keep up with repayments and perhaps improve Ontario’s medium and long-term debt outlook even more. In many ways, credit ratings and debts form a vicious cycle where entire economies are concerned – governments must keep paying interest on the money they’ve borrowed in order to borrow more money in the future, and they’re reliant upon borrowed money to keep the whole cycle turning. The taxpayer is frequently caught in the gears of this cycle. However, overall a stable outlook for Ontario means that the economy itself is stable, which can only mean good things for the majority of Sault citizens.

1 COMMENT

  1. ” A ‘stable’ outlook also makes Ontario’s borrowing prospects more robust “. Seriously, borrow ??? Apparently, we taxpayers each owe about $39,000 pp in Ontario now. Borrow ?

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