Saturday, August 6, 2011

Moody’s maintains Canada Aaa credit rating

Moody’s Investor Services is renewing Canada’s triple-A debt rating, the highest possible.

In its annual report on Canada's sovereign ratings, the firm said the Aaa rating was warranted due to the country’s high degree of economic resiliency, efforts by Ottawa and the provinces to deal with their debt ratios over the coming years and other factors.

The economy’s very high degree of resiliency is demonstrated by a high per capita income, the large scale of the economy, and its diversity, says the Moody’s report. Natural resource industries, a competitive manufacturing sector, and a well-developed and well-regulated financial market also support the country’s resiliency.

While Canada’s public finances deteriorated as a result of the global financial crisis, the federal government and the provinces are now on a track of fiscal consolidation that will improve general government debt ratios over the next few years, according to Moody’s.

Although general government debt, including the debt of the provinces and municipalities, is similar to that of other large Aaa-rated countries, the federal government’s debt position by itself is relatively low. As the provinces are highly rated, Moody’s considers the contingent liability from this source to be low, despite the relatively large size of provincial debt.

Canada’s current account balance returned to surplus in 1999 and remained there until 2008, bringing down the reliance on foreign capital inflows. This has risen somewhat in the past two years but is still not considered a risk to financial stability. Canada’s susceptibility to event risk is low and is related to the housing market and to Quebec’s sovereignty issue.