Rating agencies still wary about Ontario finances

Wed Mar 28, 2012 5:55pm EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Claire Sibonney

TORONTO (Reuters) - Ontario's bold austerity budget has received lukewarm response from bond investors and credit rating agencies as they question whether the minority government of the heavily indebted Canadian province can deliver on pledges to freeze public sector wages and implement tough spending caps.

Credit rating agency Moody's - which lowered its outlook on Ontario's debt ratings to "negative" in December - said on Wednesday that a downgrade for Ontario is "still a possibility".

"The outlook is negative, so the pressure is on the downside. We've stated that it's unlikely the province would get upgraded, so it's whether there is further downward pressure or whether it stabilizes. That is the question," Jennifer Wong, Moody's lead analyst for Ontario, told Reuters.

"We're assessing the ability to stabilize their debt burden over the medium term. So it's really about whether they can achieve that, whether they can close their fiscal gap, and whether they can stabilize the debt burden."

In a bid to eliminate its C$15.3 billion ($15.3 billion) budget deficit, Ontario's Liberal minority government put corporate tax cuts on hold in its 2012-13 budget on Tuesday and outlined an aggressive plan to rein in public sector compensation and lower the growth of health spending.

But Mario Angastiniotis, lead analyst for Ontario at Standard and Poor's, noted some of the proposed cuts and savings appear to be back-loaded.

"You're only getting C$2 billion savings in the first year with the most detail on that year, and then once you go in the outer years, your savings are increasingly moving beyond the political cycle."

Analysts and bond investors said the possibility of a snap election in the province adds a large degree of uncertainty to Ontario's outlook.   Continued...

A man walks down the street from the King and Bay intersection in the financial district in Toronto, February 22, 2011. REUTERS/Mark Blinch