FAO update on Ontario’s credit rating

Sault Ste. Marie Chamber of Commerce

Despite a sharp economic downturn and significant deterioration in the Province’s finances due to the COVID-19 pandemic, all four credit rating agencies (1) have recently reaffirmed Ontario’s credit rating and outlook. Based on a standardized scale, Ontario’s debt is currently rated AA- (fourth highest rating) by three of the four credit rating agencies and A+ (fifth highest) by S&P. In general, the agencies continue to rate Ontario as an “extremely strong”, investment-grade borrower.

Some key take-away points from the Financial Accountability Office of Ontario include:

  • Ontario’s debt is rated by four principal international credit rating agencies,1based on their assessments of the province’s economic and financial outlook,and future risks. These credit ratings represent the agencies’ opinions on Ontario’s ability to meet its debt-related financial obligations.
  • Although the COVID-19 pandemic is expected to weaken Ontario’s fiscal position in the medium term, resulting in larger deficits and a higher debt burden, the credit rating agencies have all reaffirmed their rating and outlook for Ontario as stable in their updated assessments.
  • Credit rating agencies have highlighted Ontario’s diversified economy, broad access to credit markets, prudent debt management practices and the support of the federal government as key drivers behind maintaining Ontario’s credit rating.
  • Ontario’s credit rating relative to other Canadian provinces was unchanged in 2020, ranking sixth among the 10 provinces.
  • However, all four credit rating agencies highlight the risk of a downgrade to Ontario’s credit rating if the Province does not return to a sustainable fiscal plan in the post-pandemic period, which would include steady decreases in the budget deficit and a lower debt burden.

The decision by the agencies to reaffirm Ontario’s credit rating is based on several factors, including projections for a strong post-pandemic economic recovery, revenue growth supported by a diversified economy and broad tax base, and expectations for a pragmatic fiscal consolidation plan that results in debt sustainability. Fitch recently downgraded the Canadian federal government’s credit rating from AAA to AA+, but indicated that this decision does not directly affect Ontario’s rating. However, Fitch did note that the significant increase in federal government debt associated with its fiscal response to the pandemic can impact the credit quality of individual provinces,as Fitch’s calculation of provincial debt includes each province’s proportional share of federal debt.

Ontario’s Credit Rating Relative to Other Provinces Unchanged

Source: S&P, DBRS, Fitch, Moody’s and FAO.

Ontario’s credit rating compared to other Canadian provinces was unchanged in 2020, ranking sixth among the 10 provinces. Alberta saw a significant deterioration in its average credit rating, with three of the four agencies downgrading the province’s debt over the last year. Saskatchewan was the only other Canadian province to see a downgrade to its credit rating in 2020, as one of the four rating agencies took a negative rating action against the province. The deterioration in the credit rating of Alberta and Saskatchewan largely reflects the sharp drop in the economic prospects of these provinces due to the decline in oil prices.

Ontario’s rating outlook remains at “stable” by all four agencies, indicating a low likelihood of a deterioration in the province’s credit rating over the medium term, subject to the province’s fiscal consolidation efforts in the post-pandemic period. In contrast, the credit rating outlook of British Columbia, Alberta, and Newfoundland and Labrador were revised to “negative” by one or more credit rating agencies, indicating a higher risk of credit downgrade over the medium term.

The full FAO report is available here: https://www.fao-on.org/en/Blog/Publications/credit-rating-2020


(1) The four credit rating agencies are Moody’s Investors Service (Moody’s), S&P Global Ratings (S&P), DBRS Limited (DBRS) and Fitch Ratings (Fitch). The agencies continually review the province’s credit rating and typically publish an update on their view of the Province’s finances and credit quality annually, based on the government’s latest financial reports or statements and their view of the outlook and risks.