Provincial Debt getting more expensive
Ontario just had the credit rating placed on a Negative Watch. Quebec is in worse shape. NS and NB not far behind.
Down grades are coming.
http://fullcomment.nationalpost.com...rating-that-thud-was-the-first-shoe-dropping/
Those of you in Ontario, or in the adjoining provinces and states, might have heard a sudden, ominous thud a little bit before 5 on Wednesday evening. That was the first shoe dropping.
Ratings agency Standard & Poor’s (S&P) has revised its outlook for Ontario’s economy. It had been projecting Ontario’s outlook as “stable.” On Wednesday, the day after Liberal minority government passed its budget with the help of the New Democrats (who politely abstained), the ratings giant announced that they now consider Ontario’s outlook to be “negative.”
“We believe the province’s main credit challenges include its continuing weak budgetary and debt metrics and its challenging cost-containment plan required to achieve budgetary balance by fiscal 2018,” S&P said in a statement. “Ontario’s large budgetary deficits since the recession have significantly boosted the debt burden. At the end of fiscal 2012, Ontario’s tax-supported debt totalled C$235-billion, representing 218% of consolidated operating revenues (or about 37% of GDP). This is a sharp increase from 161% of consolidated operating revenues in fiscal 2009.” It went on to add: “The negative outlook reflects our view that there is at least a one-in-three likelihood that we could lower the long-term rating one notch within two years.”
Someone should get Ontario Finance Minister a glass of warm milk. Dwight Duncan has admitted to the media before that the prospect of Ontario’s costs of borrowing suddenly spiking keep him awake at night. This won’t help.
The recent budget compromise struck with the NDP does show that the Liberals have some awareness of the hole they’ve dug for themselves. Though the government did agree to the NDP’s demand for a new surtax of an additional 2% of income tax on those Ontarians making more than $500,000 a year, Premier Dalton McGuinty refused NDP demands that the extra funds raised — expected to fall in the $470-million a year range — be used to accelerate Ontario’s return to balanced budgets. The Premier has said, backed up by Liberal press releases, that this will allow Ontario to return to fiscal balance sooner than had been planned.
Not exactly, or at least not by much. The plan was always to get Ontario’s books balanced by 2018, and with the new tax, they now expect to run a small surplus in that year. Ontario will still be reliant on borrowed money as late as 2017. And that assumes that the tax raises the maximum amount that it could. Just because the Premier has asked the province’s wealthiest citizens to do “just a little bit more” doesn’t mean they will. Most of these people are making big money because they’re smart with it.
S&P hasn’t cut Ontario’s credit rating yet, and does cite that the province is continuing to recover from the recession. But the decision to change the province’s outlook to negative is a clear expression of doubt that the Liberals, and at least one of the opposition parties, will be able to actually enact the austerity-ish measures required to meet their own goals. Goals, it should be pointed out, that the Liberals already think are the best they can hope for, or are at least willing to pursue.
Ontario might get lucky. A few more political compromises, and absolutely no further shocks to the global or provincial economy for the next five or six years, and things might go just fine. But Ontario’s Liberals have left the province in such a vulnerable state that even the smallest wrench dropped (or thrown) into the works could easily cause Ontario to miss its targets, triggering credit downgrades, throwing its plans further out of whack, leading to more downgrades…
The province would then face the grim reality of either real austerity — the kind that actually cuts spending, instead of slowing it down — or the kind of sudden and near-total fiscal unravelling that has beset Greece. Yes, it’s a very negative outlook indeed.
S&P puts Ontario on negative credit watch | Economy | News | Financial Post
One day after the governing Ontario Liberals survived a confidence vote on their 2012 budget, a ratings agency is calling into question the province’s fiscal plan.
Standard & Poor’s Ratings Services put the province of Ontario on negative credit watch Wednesday, raising the possibility of a punitive downgrade.
“We believe the province’s main credit challenges include its continuing weak budgetary and debt metrics and its challenging cost-containment plan required to achieve budgetary balance by fiscal 2018,” S&P said in a statement.
Earlier in the day, the province reinforced its commitment to the spending restraint proposed in the 2012 budget, which aims to eliminate the $15.3-billion provincial deficit over the next five years.
Within a challenging economic environment in Ontario limiting the opportunities to increase revenue, the government is focusing on reducing spending to tackle its deficit, which is more than three times larger than the budget shortfall of all other provinces combined.
S&P questioned the province’s ability to sufficiently control spending.
“Although we believe that the government’s fiscal plan is based on cautious near-term economic assumptions, its success is tied to significant savings measures that could prove challenging to achieve,” the agency said. “A downgrade could occur should we come to believe that the debt burden were to start trending materially above our current base-case scenario projections.”
Last December, Moody’s Investors Service issued a similar caution. Avoiding a downgrade, which could reduce investor confidence in debt issued by Ontario and would raise the province’s cost of financing, was part of the motivation and justification for cost cutting in the 2012 budget.
I would regard it more as a major warning that the credit ratings agencies are watching to see whether the spending restraint can be achieved,” said Doug Porter, deputy chief economist at BMO Capital Markets.
A substantial component of the government’s fiscal consolidation involves winning concessions on compensation for school boards, physicians and public servants.
“The government is dealing with some very strong unions,” Mr. Porter said. “That’s a legitimate concern.”
S&P pegged the odds of a downgrade within two years as “at least one in three.”
Ontario just had the credit rating placed on a Negative Watch. Quebec is in worse shape. NS and NB not far behind.
Down grades are coming.
http://fullcomment.nationalpost.com...rating-that-thud-was-the-first-shoe-dropping/
Those of you in Ontario, or in the adjoining provinces and states, might have heard a sudden, ominous thud a little bit before 5 on Wednesday evening. That was the first shoe dropping.
Ratings agency Standard & Poor’s (S&P) has revised its outlook for Ontario’s economy. It had been projecting Ontario’s outlook as “stable.” On Wednesday, the day after Liberal minority government passed its budget with the help of the New Democrats (who politely abstained), the ratings giant announced that they now consider Ontario’s outlook to be “negative.”
“We believe the province’s main credit challenges include its continuing weak budgetary and debt metrics and its challenging cost-containment plan required to achieve budgetary balance by fiscal 2018,” S&P said in a statement. “Ontario’s large budgetary deficits since the recession have significantly boosted the debt burden. At the end of fiscal 2012, Ontario’s tax-supported debt totalled C$235-billion, representing 218% of consolidated operating revenues (or about 37% of GDP). This is a sharp increase from 161% of consolidated operating revenues in fiscal 2009.” It went on to add: “The negative outlook reflects our view that there is at least a one-in-three likelihood that we could lower the long-term rating one notch within two years.”
Someone should get Ontario Finance Minister a glass of warm milk. Dwight Duncan has admitted to the media before that the prospect of Ontario’s costs of borrowing suddenly spiking keep him awake at night. This won’t help.
The recent budget compromise struck with the NDP does show that the Liberals have some awareness of the hole they’ve dug for themselves. Though the government did agree to the NDP’s demand for a new surtax of an additional 2% of income tax on those Ontarians making more than $500,000 a year, Premier Dalton McGuinty refused NDP demands that the extra funds raised — expected to fall in the $470-million a year range — be used to accelerate Ontario’s return to balanced budgets. The Premier has said, backed up by Liberal press releases, that this will allow Ontario to return to fiscal balance sooner than had been planned.
Not exactly, or at least not by much. The plan was always to get Ontario’s books balanced by 2018, and with the new tax, they now expect to run a small surplus in that year. Ontario will still be reliant on borrowed money as late as 2017. And that assumes that the tax raises the maximum amount that it could. Just because the Premier has asked the province’s wealthiest citizens to do “just a little bit more” doesn’t mean they will. Most of these people are making big money because they’re smart with it.
S&P hasn’t cut Ontario’s credit rating yet, and does cite that the province is continuing to recover from the recession. But the decision to change the province’s outlook to negative is a clear expression of doubt that the Liberals, and at least one of the opposition parties, will be able to actually enact the austerity-ish measures required to meet their own goals. Goals, it should be pointed out, that the Liberals already think are the best they can hope for, or are at least willing to pursue.
Ontario might get lucky. A few more political compromises, and absolutely no further shocks to the global or provincial economy for the next five or six years, and things might go just fine. But Ontario’s Liberals have left the province in such a vulnerable state that even the smallest wrench dropped (or thrown) into the works could easily cause Ontario to miss its targets, triggering credit downgrades, throwing its plans further out of whack, leading to more downgrades…
The province would then face the grim reality of either real austerity — the kind that actually cuts spending, instead of slowing it down — or the kind of sudden and near-total fiscal unravelling that has beset Greece. Yes, it’s a very negative outlook indeed.
S&P puts Ontario on negative credit watch | Economy | News | Financial Post
One day after the governing Ontario Liberals survived a confidence vote on their 2012 budget, a ratings agency is calling into question the province’s fiscal plan.
Standard & Poor’s Ratings Services put the province of Ontario on negative credit watch Wednesday, raising the possibility of a punitive downgrade.
“We believe the province’s main credit challenges include its continuing weak budgetary and debt metrics and its challenging cost-containment plan required to achieve budgetary balance by fiscal 2018,” S&P said in a statement.
Earlier in the day, the province reinforced its commitment to the spending restraint proposed in the 2012 budget, which aims to eliminate the $15.3-billion provincial deficit over the next five years.
Within a challenging economic environment in Ontario limiting the opportunities to increase revenue, the government is focusing on reducing spending to tackle its deficit, which is more than three times larger than the budget shortfall of all other provinces combined.
S&P questioned the province’s ability to sufficiently control spending.
“Although we believe that the government’s fiscal plan is based on cautious near-term economic assumptions, its success is tied to significant savings measures that could prove challenging to achieve,” the agency said. “A downgrade could occur should we come to believe that the debt burden were to start trending materially above our current base-case scenario projections.”
Last December, Moody’s Investors Service issued a similar caution. Avoiding a downgrade, which could reduce investor confidence in debt issued by Ontario and would raise the province’s cost of financing, was part of the motivation and justification for cost cutting in the 2012 budget.
I would regard it more as a major warning that the credit ratings agencies are watching to see whether the spending restraint can be achieved,” said Doug Porter, deputy chief economist at BMO Capital Markets.
A substantial component of the government’s fiscal consolidation involves winning concessions on compensation for school boards, physicians and public servants.
“The government is dealing with some very strong unions,” Mr. Porter said. “That’s a legitimate concern.”
S&P pegged the odds of a downgrade within two years as “at least one in three.”
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