TORONTO - DBRS has confirmed the federal government's AAA credit rating, the best available, but also warned Monday of "a much more challenging economic environment'' that could tip Ottawa's finances into deficit.
The Toronto-based debt rating agency noted that the federal budget in February projected a surplus of $2.3 billion, much smaller than in recent years. This was based on an assumption that the economy would grow by about 1.7 per cent during the year, "which may turn out to be optimistic given the uncertainty surrounding the economic outlook,'' DBRS said.
At the same time, the government has said a one-percentage-point decrease in economic growth could lower the budget balance by $3.3 billion, and "it is not clear what steps the government would take should such an economic scenario materialize,'' the agency's report says.
"Given the short-term inflexibility inherent in expenditures, it is likely that the government would run its first budgetary deficit in over a decade. Even so, any such deficit would be on the order of 0.1 to 0.2 per cent of gross domestic product, small relative to the surpluses of the past few years.''
Monday's report notes that Canada's credit profile "has continued to strengthen as a direct consequence of prudent fiscal management and strong tax revenue growth, reflecting the country's solid economic performance in recent years.''
As a result, the federal government's unmatured debt currently stands at 25 per cent of GDP, down by 3.5 percentage points from last year and 28 points from a decade ago.
Additionally, "although the economic outlook is uncertain, the Canadian economy is well positioned to weather a downturn,'' DBRS added, and "Canada's credit profile is expected to remain outstanding over the medium term.''
