Moody's upgrades Ontario's credit rating outlook to 'stable'

Credit rating agency Moody's has upgraded its outlook for Ontario's long-term debt from "negative" to "stable," while maintaining the province's debt rating at Aa2, the agency's third-highest rating for long-term debt.

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"The stable outlook on the Province of Ontario's ratings reflects our opinion that the province has presented a budget plan with little risk that the debt burden will exceed recent levels," said Moody's Investor Services vice president Michael Yake.

Moody's previously downgraded Ontario's debt rating outlook from stable to negative in July 2014, following the re-election of Premier Kathleen Wynne's government with a majority in the provincial legislature.

Minister of Finance reacts

"Moody's outlook change reflects its confidence in our government's plan to grow Ontario's economy and create jobs for Ontarians," the province's Minister of Finance Charles Sousa said in a statement.

"Our government remains on track to eliminate the deficit by 2017-18, and remain balanced in 2018-19."

In explaining its latest decision, Moody's cited "the return to balanced budgets on the horizon ... continued expenditure control," and "increasing revenues." Even though Ontario's total debt is expected to increase in the medium-term in order to finance infrastructure spending, Moody's said it expects Ontario's debt-to-revenue ratio to improve over the same time period.

Specifically, Moody's expects Ontario's net direct and indirect debt to hit 240 per cent of revenues for the 2015-2016 fiscal year, before falling to 237 per cent of revenues in 2016-17.

Moody's forecast that Ontario will spend a higher proportion of revenues on interest payments when interest rates rise, but expects that proportion to stay below 10 per cent of the province's revenues.

The 2016 Ontario budget unveiled a cap-and-trade system that the government says will increase revenues beginning in 2017.