The rating agency says that the budget unveiled by federal Finance minister, Jim Flaherty on February 11, “is consistent with the policy assumptions that underpin the government’s Aaa bond rating, which has a stable outlook.”
The budget maintained the government’s goal of returning to balance by 2015-2016, and projects a modest surplus of 0.3% of GDP in that fiscal year, Moody’s notes, adding that the budget announcement reinforces its view that “Canada’s fiscal consolidation will continue over the coming years”.
Moody’s suggests that the achievement of specific fiscal targets may depend on GDP growth performance. It is forecasting that GDP growth in 2014 will likely accelerate slightly from its levels in 2013 as exports accelerate.
“The possibility of potentially weaker government revenue during this transition is likely to be counterbalanced by the authorities’ commitment to expenditure controls, which will support the achievement of the balanced budget target in the medium-term,” Moody’s says, adding that the projected fiscal deficit for 2014-2015 “remains modest by global standards and some slippage in the targeted deficit would not add material negative pressure to the sovereign credit profile.”
Moody’s notes that Canada’s aggregate government debt, including the provinces and municipalities, is estimated at over 80% of GDP currently, which is above the median for AAA-rated sovereigns.
Nevertheless, it says it expects that, “declining federal debt ratios, combined with the fiscal consolidation that the provincial governments are pursuing will also lead to a decline in general government debt ratios and support the stable outlook on Canada’s rating.”