Fitch Ratings has affirmed its ratings on the province of Ontario, but lowered the outlook to negative on fears that it will be tough to achieve fiscal balance.
The province’s ‘AA’ rating is supported by its wealthy, diversified economy, sound financial management, and commitment to return to balanced financial operations and reduce its debt burden, Fitch say.
The rating agency said that the move to a negative outlook reflects its concern that the province “will be challenged in implementing a multiyear financial plan to achieve fiscal balance” by 2018. It notes that the plan will require “considerable, ongoing expenditure restraint in divergence from historical growth trends while achieving forecast revenue targets.”
In addition, Fitch notes that revenues in fiscal 2011 were below target, although expenditures were also less than budgeted.
“The province has a large debt balance and escalating debt burden as a result of recent infrastructure investment and stimulus programs coupled with declines in GDP,” the rating agency says.
Fitch warns that a downgrade could be triggered by either an inability to achieve targets in the plan to return to fiscal balance; or, an unforeseen economic or fiscal shock that delays achievement of fiscal balance.