The provinces do not need the federal, writes Moody’s

Photo: Emmanuel Dunand Agence France-Presse
The short-term deterioration of the fiscal situation of Canada will be pronounced. But, in the medium term, the profile of the sovereign debt of Canada, will display its resilience.

The stress caused by the pandemic on the public finances of provincial governments is rather felt. But they should get by without an aid of last resort of Ottawa, argues Moody s.

Continuing his reading of the state of health of public finances in Canada, the rating agency Moody’s has extended on Thursday, his gaze on the entities of the public sector. At the provincial level,she concluded that the robustness of the general profile of the credit of the various governments. The agency is not expected that provincial governments will experience financial stress that will require extraordinary support of Ottawa, continuing to benefit from access to the markets of historically low interest rates. Besides the direct action of the Bank of Canada on the markets.

Moody’s adds that the recent funding of the provinces are carried out with a range of 74 to 94 basis points above Canada bonds, a gap that is barely wider than the one measured prior to the pandemic.

This will not prevent the provinces oil of having to deal with the persistent weakness of the course. The economic slowdown caused by the pandemic maintains the downward pressure on oil demand. In particular the weakness of investment, and overcapacity in the market.

This will be more tense at the municipal level. If the cities are based, for the most part, on reservations, these cushions should be primarily used for specic purposes and not to serve as a mechanism of fiscal stabilization, adds Moody s. by doing This, municipalities will need to rely on a combination including the reserves, the reduction in current spending, the deferral of capital expenditure on non-essential and the transfers from levels of government above.

The side of academia, Moody’s believes that the government funding of universities should remain as planned, this will not prevent the application of cost reduction measures, more where foreign students account for a larger share of the revenues.

The greater pressure will be felt on the credit of the transit agencies, grappling with a decline in their income. Also, the use of telework could result in a decrease in the longer term the use of transit, points out Moody s.

In his comprehensive published on 21 April, Moody’s mentioned the resilience. Canada, which receives the notes triple-A (stable), is going to recover from the double shock of the health crisis and the collapse of oil prices. The profile of its sovereign debt will prove resilient”, she wrote. And despite an expected increase of some 20 percentage points of the debt/GDP ratio, ” the strong response to fiscal and financial will help limit damage “, wore it.

The short-term deterioration of the fiscal situation of Canada will be pronounced. But, in the medium term, the profile of the sovereign debt of Canada, will display its resilience, the rating agency assumes a recovery and fiscal consolidation.

Fitch is less open

This reading contrasts with that of Fitch, which has withdrawn, the last month, his triple-A in Canada. It has lowered the credit rating to ” AA + “, citing what it called “the deterioration in the public finances of Canada” because of the pandemic. The coronavirus and the drop in oil prices ” will cause a serious recession in Canada this year, had explained Fitch, who also believed that the growth prospects in the medium term Canada’s are limited and inferior to those of many of his peers.

Unlike Moody’s, Fitch has indicated that federal spending would have to increase more to help the provinces short of cash.

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