S&P Global Maintains Canada’s AAA Rating Despite Colossal Deficit

S&P Global Ratings has reiterated its top-notch credit rating for Canada, despite the government’s latest federal budget that included $101 in new spending initiatives.

In a report published late Monday, S&P affirmed its AAA rating on Canada, along with a robust outlook because “Canada’s public finances were well positioned entering the pandemic, enabling a strong policy response to contain its negative effects without weakening sovereign creditworthiness.”

The report went on to forecast that Canada’s GDP levels would grow by 5.5% this year, before slowing to 2.4% and 2.8% in 2022 and 2023, respectively. In contrast, the Bank of Canada is expecting GDP levels to expand by 6.5% in the current year, followed by 3.7% growth next year and a 3.2% expansion in 2023. However, despite S&P’s optimistic outlook, the ratings agency did note that there is a possibly of Canada’s credit rating being downgraded in the next couple of years, especially if the government’s sluggish fiscal health becomes “significantly more severe and prolonged” than previously anticipated.

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Last week, Finance Minister Chrystia Freeland unveiled the government’s first budget in two years, which called for $101 billion in additional spending over the next three years. The federal government ran a historic budget deficit to the tune of $354.2 billion for the last fiscal year, in wake of unprecedented emergency spending to combat the Covid-19 pandemic. Although the deficit is expected to halve to $154.7 billion in the 2021/2022 fiscal year, the Liberal government has yet to outline definitive plans to get the budget back to balance.

Information for this briefing was found via S&P Global Ratings. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.