Standard & Poor’s Ratings Services today affirmed its ‘AAA’ long-term foreign and local currency sovereign credit ratings on Canada.

S&P also affirmed its ‘A-1+’ short-term sovereign credit ratings on Canada. The outlook is stable.

“The ‘AAA’ rating on Canada rests on the country’s sound public finances, its diversified economy, and its political stability,” said Standard & Poor’s credit analyst Nikola Swann, in a release.

“Canada has undergone a remarkable fiscal consolidation in the past 13 years, moving from deficits of more than 5% of GDP to surpluses of up to 2% of GDP. We expect fiscal discipline to be maintained under the minority government to be formed under incoming Prime Minister Stephen Harper. That said, fiscal surpluses, which have prevailed for the past eight years, are likely to be reduced to a near-zero balance with the expected reduction of the federal Goods & Services Tax (GST) to 6% from 7% this year, and further to 5% during the following four years, and with higher spending in health care and security. Nevertheless, the debt trajectory of the general government should continue to decline, as any tendency for higher fiscal deficits should be checked by a broad public consensus in favor of fiscal prudence, and as economic growth should remain strong,” he added.

S&P forecasts that general government debt, which includes federal, provincial, and municipal debt, will decline to less than 65% of GDP at fiscal year-end 2006 from more than 100% nine years earlier.

S&P notes that Canada has the political capacity and will to respond quickly to changing conditions, a diversified economy, and a strong financial system.

The ratings agency adds that Canada has a better fiscal position than either France or Germany, and its external position is much stronger than that of the United States.

“The ‘AAA’ rating on Canada is secure against most foreseeable events,” it concludes.