The rating agency Fitch has stripped Canada of its AAA credit rating, a direct result of the tens of billions of dollars of expenses related to the pandemic.
At Fitch, the rating of Canada, thus, passes from AAA to AA+. For the moment, the country retains the highest rating possible from Moody’s, Standard & Poor’s and DBRS.
“The downgrade reflects the deterioration in the public finances of Canada by 2020 due to the pandemic of sars coronavirus. Canada will record a government deficit significantly more important in 2020 and emerge from the recession with public debt ratios much higher [compared to the weight of the economy],” wrote Fitch in a note published Wednesday.
The government of Justin Trudeau has announced more than $ 150 billion of direct action in response to the pandemic, which include the popular Delivery canadian emergency. According to the parliamentary budget officer, the federal deficit for the fiscal year 2020-2021 could exceed the $ 256 billion dollars.
“Fitch expects that the response to the coronavirus will increase the government debt consolidated gross to 115.1% of GDP [gross domestic product] by 2020, up from 88.3 per cent in 2019,” said the third largest credit rating agency in the world.
Note that, despite strong economic growth, the Trudeau government has never balanced the federal budget since coming to power in November 2015.
“At the beginning of the pandemic, the Canada was in a very good position to deploy its power to tax to protect Canadians, and we did. The worst case scenario, for Canadians and the economy, would have been not to act,” responded the federal minister of Finance, Bill Morneau, noting that borrowing costs were currently historic lows.
Prior to the decision of Fitch, Canada was among a handful of countries hold the credit rating supreme with the four major rating agencies.
Today, only Germany, Australia, Norway, Sweden, Denmark, the netherlands, Switzerland, Luxembourg and Singapore are part of this select club.