S&P sends wake-up call to Ontario, lowers outlook

Wed Apr 25, 2012 7:57pm EDT
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By Claire Sibonney

TORONTO (Reuters) - Ontario's bold austerity budget and accelerated path to balance its finances were met with nagging skepticism on Wednesday after credit rating agency Standard & Poor's lowered its outlook on the province's debt ratings to "negative."

The move provided another wake-up call to analysts and investors, raising the possibility of further rating downgrades and higher borrowing costs for Canada's most powerful province.

"Whenever we revise an outlook, it means there is at least a one-in-three chance that there will be a rating revision," S&P's lead Ontario analyst Mario Angastiniotis told Reuters, noting a downgrade to the credit is possible within two years.

S&P's lowered outlook followed similar action by Moody's in December. The news came hours after the minority Liberal government announced forecasts for lower budget deficits and a surplus in 2017-18.

Ontario's credit is scored Aa1 at Moody's, AA- at S&P, and AA low at DBRS. They are investment grade ratings, but below the federal government's top rating.

Moody's still has a higher rating on Ontario than the other two agencies, which downgraded the province in 2009 after the province's manufacturing-based economy was ravaged by the global recession.

"You have a minority parliament that may not be able to implement all the proposed restructuring that the Liberal government has proposed. ... The record on minority parliaments in Canada is mixed," said Angastiniotis.

He pointed out the current government may not stay in power for long enough to fulfill its plan and that external headwinds such as Europe's debt crisis and a still recovering U.S. economy just make matter worse for the province.   Continued...

Ontario Provincial Minister of Finance Dwight Duncan is seen in his office adjacent to Queen's Park in Toronto March 5, 2012. REUTERS/Fred Thornhill