As a result of the mounting federal government spending on coronavirus mitigation efforts, Canada has had its credit rating reduced from AAA to only AA+ alongside a stable outlook for the medium term.
Fitch Ratings Inc is anticipating Canada’s debt to increase from 88.3% of GDP in 2019, to 115.1% of GDP in 2020, with debt-to-GDP becoming more stable in the medium run. The sudden increase in debt comes amid a sudden and significant increase in federal government spending on the coronavirus pandemic. Since the onset of the pandemic, spending on coronavirus relief measures has surpassed $150 billion.
As a result of the increased spending on pandemic measures, Fitch has downgraded the country’s credit rating to AA+ in response to the country’s respective debt increase. The rating downgrade is certainly a blow to the federal government, which has prided itself with Canada’s exceptional AAA credit rating, and even made it a point on their 2019 election platform. However, Canada’s parliamentary budget officer Yves Giroux is not surprised by the credit rating reduction in wake of a global pandemic. According to Giroux, so as long as other credit rating agencies do not follow suit in downgrading, then Canada does not have much to worry about.
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