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Fitch downgrades Canada’s credit rating from AAA to AA+

The COVID-19 pandemic has wreaked havoc on our once fantastic credit rating. Fitch Ratings, one of three credit rating organizations has downgraded Canada’s credit rating to AA+ from AAA, citing the federal government’s move to borrow about a quarter of a trillion dollars to prop the economy up during the pandemic lockdown.

Fitch last confirmed Canada’s rating in July of last year. S&P Global Ratings and Moody’s both still have Canada listed as top tier borrowers. S&P Global Ratings last confirmed Canada’s rating in November of last year, while Moody’s last confirmation came in May of this year.

The agency said that while it is downgrading Canada’s rating, it expects Canada’s debt-to-GDP ratio to stabilize over the medium term before the economy gradually starts recovering with the help of monetary and fiscal stimulus. 

In a statement, Finance Minister Bill Morneau’s office said that Canada’s pre-pandemic economic health allowed the federal government to “deploy our fiscal firepower to protect Canadians” and that the economy would be in far worse shape had it not acted. 

“Canada continues to be in a stronger financial position than many other countries in the G7 and G20,” the statement said. “Global markets continue to invest in Canadian bonds, driving our cost of borrowing to historic lows. Moving forward, we will continue to be fiscally responsible while acting to protect our country and its economy.”

Fitch predicts Canada’s pandemic response will increase its consolidated gross general government debt to 115.1 per cent of GDP in 2020, up from 88.3 per cent of GDP in 2019.

Fitch said it expects Canada’s debt-to-GDP ratio to stabilize at about 120 to 121 per cent sometime between 2022 and 2024. 

The report said Fitch has confidence in Canada’s economic recovery in 2021 because of the advanced, well-diversified and high-income nature of its national economy. It also cites Canada’s political stability, strong governance and policies that have “delivered steady growth and low inflation.”

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