Press Release

DBRS Morningstar Upgrades Province of Québec to AA (low) on Continued Fiscal Outperformance and Improving Debt Metrics

Sub-Sovereign Governments, Utilities & Independent Power, Other Government Related Entities
November 12, 2019

DBRS Limited (DBRS Morningstar) upgraded the Province of Québec’s (the Province) Issuer Rating and Long-Term Debt rating to AA (low) from A (high) and changed the trends to Stable from Positive. In addition, DBRS Morningstar upgraded the long-term ratings for Hydro-Québec and Financement-Québec to AA (low) from A (high) and changed the trends to Stable from Positive. DBRS Morningstar also confirmed Québec’s Short-Term Debt rating and the short-term ratings of Hydro-Québec and Financement-Québec at R-1 (middle) with Stable trends.

The upgrade follows the release of Québec’s 2018–19 public accounts and 2019 “Update on Québec’s Economic and Financial Situation,” released on November 7, 2019, which once again reinforced Québec’s commitment to a pro-growth agenda, sustainable public finances and meaningful debt reduction. DBRS Morningstar has confidence that the Province will continue to report positive operating results, that debt ratios will continue to fall and that policy measures will be supportive of growth through the medium term.

The Province reported a surplus of $8.3 billion for the 2018–19 fiscal year, which was well ahead of the initial budget forecast of $0.9 billion and the interim projection of $5.6 billion. The better result was driven by a combination of higher-than-expected tax revenues, increased investment income and lower-than-planned spending. On an adjusted basis, including capital investment, this translates into a deficit of $3.1 billion, or 0.7% of gross domestic product (GDP) — the best performance among Canadian provinces.

For 2019–20, the Province is tracking well ahead of plan, as economic conditions are proving stronger than previously expected. Québec now projects a budget surplus of $4.1 billion (before contributions to the Generations Fund), up from the $2.5 billion surplus projected in the March 2019 budget. On an adjusted basis, the revised forecast equates to a deficit of approximately $2.5 billion, or 0.5% of GDP. DBRS Morningstar believes there is further upside potential to the forecast, as year-to-date monthly financial reporting is broadly tracking last year’s monthly reporting.

With the stronger budget forecast, the Province also announced that it would accelerate implementation of several previously announced measures, including the following:

-- Enhancement of the family allowance.
-- Elimination of the additional contribution for child care.
-- Reduction in health-care parking fees.

The measures, combined with other targeted initiatives to support municipalities, print media companies and the taxi industry, total $4.7 billion over five years. Despite the additional spending, the medium-term fiscal outlook has nevertheless improved relative to DBRS Morningstar’s expectations.

The updated forecasts suggest that the adjusted debt-to-GDP ratio will trend steadily lower, potentially reaching 44.0% by 2023–24, down from almost 60.0% in 2014–15 and 48.1%% in 2018–19. Along with improving fiscal results, the outlook has been supported by strong investment returns, which have supported growth in the Generations Fund and the Retirement Plans Sinking Fund, further reducing adjusted debt.

For 2019, Québec has raised its real GDP growth forecast to 2.4% from 1.8%, which is the fastest projected growth rate among provinces. The improved forecast reflects stronger domestic demand. Strong employment, rising wages and salaries and low interest rates have supported consumption and residential investment, while tightening labour-market conditions, federal and provincial policy measures and rising output are prompting non-residential investment. The provincial economy has momentum heading into 2020, though like most advanced economies, growth is expected to moderate in the coming years. The Province projects real GDP growth of 1.8% in 2020 and for growth to average 1.3% in subsequent years. Despite the benign outlook, downside risks remain pronounced, including ongoing global trade tensions and uncertainty around monetary policy in advanced economies and other geopolitical tensions.

Another positive rating action is unlikely through the medium term as the critical rating factors remain well anchored and the debt-to-GDP remains relatively high. Québec’s credit profile has flexibility to withstand a modest contraction in economic activity without endangering the AA (low) ratings. Nevertheless, a negative rating action could arise if there were a sustained deterioration in operating performance resulting in a significant increase in the provincial debt burden.

All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Canadian Provincial and Territorial Governments and DBRS Criteria: Guarantees and Other Forms of Support, which can be found on under Methodologies & Criteria.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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