March 28, 2012 / 6:58 PM / 6 years ago

Moody's says Ontario downgrade still possible

TORONTO (Reuters) - Credit rating agency Moody’s said on Wednesday that a downgrade for Ontario is “still a possibility” despite austerity measures the Canadian province announced in Tuesday’s budget aimed at eliminating its deficit in six years and calming investors.

Moody’s lowered its outlook on Ontario’s debt ratings to “negative” in December, blaming the province’s growing debt burden, softening economic outlook and the length of time it will take to balanced its budget.

Jennifer Wong, Moody’s lead analyst for Ontario, said a shift to a “stable” outlook could take at least a year or more to establish, while an upgrade to a “positive” outlook remains unlikely.

“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,” Wong told Reuters.

“I don’t see them going to a positive outlook any time soon. As to going back to stable ... 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.”

She said Moody’s will soon meet with the government and further assess the latest budget before issuing a formal report on the province. Last year’s full review was released in April, following the previous budget in late March.

Ontario’s credit ratings are Aa1 negative 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 Canada’s most populous province announced it would run a record deficit in the aftermath of the recession that pummeled its export-reliant manufacturers.

Ontario’s minority Liberal government put corporate tax cuts on hold and pledged a renewed effort to rein in public sector labor costs in a tough budget that tried to convince rating agencies the province is fiscally sound.

Editing by Jeffrey Hodgson

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