Fitch Ratings warned that Canada’s proposed 2025 budget underscores erosion of federal finances and could increase rating pressure over the medium term even as the sovereign remains AA+ with a Stable outlook.
In its wire note, the agency wrote that while “Canada’s rating is broadly stable, persistent fiscal expansion and a rising debt burden have weakened its credit profile and could increase rating pressure over the medium term.”
“This may be exacerbated by persistent economic underperformance caused by tariff risks and structural challenges, including low productivity,” the agency added.
Fitch says Budget 2025 “substantially increases capital expenditure while moderating growth in operating expenditures and delivering modest savings.”
In addition, the agency referred to the budget breaching “all three Budget 2024 guideposts,” referring to the fiscal targets the Finance Minister set in April 2024. Those guideposts were: keep the 2023–24 deficit at or below $40.1 billion, lower the debt-to-GDP ratio in 2024–25 and keep it on a declining track thereafter, and maintain a declining deficit-to-GDP ratio in 2024–25 with deficits below 1% of GDP from 2026–27 onward.
In September, the PBO said it now expects the 2025-26 deficit to rise 32% to $68.5 billion, or 2.2% of GDP, as weaker trade, tariff frictions, and a smaller tax base reduce revenues while new measures lift spending, pushing federal finances off their previously declining path. Federal debt grows from $1.28 trillion in 2024-25 to $1.66 trillion by 2030-31, and borrowing needs are expected to exceed the current $2.126 trillion legislative cap by 2026-27, requiring parliamentary approval to raise it. Growth is marked down, with real GDP now projected at 1.2% in 2025 and 1.3% in 2026, while public debt charges climb from $55.3 billion in 2025-26 to $82.4 billion in 2030-31, increasing the debt-service ratio from 10.7% to 13.7%.
A projected $78.3 billion deficit headlines the Budget 2025 that the Carney government tabled for the current fiscal year, up from the $42.2 billion shortfall previously estimated. The deficit is paired with $60 billion in savings and revenues and a plan to enable $1 trillion in total investment over the next five years.
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