In its annual report on Canada, Moody’s Investors Service says the country’s Aaa rating and stable outlook are supported by strongly improving trends in Canada’s external financial position and government debt ratios.

“The outlook for Canada’s ratings is stable, supported by Moody’s expectation of further improvements in both the country’s external financial position and general government debt ratios,” said Moody’s vice president Steven Hess, author of the report.

Canada’s ratios of general government debt to GDP and to revenue have moved significantly downward over the past four years, although they are still higher than the median for Aaa-rated countries, the rating agency notes. The ratios of net debt to GDP and to revenue are also declining, although these are closer to the median for such countries, it adds.

Moody’s believes that these ratios’ downward trends will continue into the medium term, due to the political consensus in Canada that supports balanced budgets and paying off government debt, said Hess. Canada’s government has announced its goal of reducing the ratio of debt to GDP to 25% over the next 10 years, and this could be achieved even sooner.

Canada’s current account balance has been in surplus since the 1996/1997 budget, and most medium-term projections indicate that it will remain there for some time to come, even if there could be an occasional, small deficit due to cyclical factors, Moody’s adds. The return to surpluses has caused the net external liability position to decline significantly.

Moody’s expects this trend to continue, greatly lessening vulnerability to shocks coming from external developments, especially from the U.S., or from events within Canada.