Press Release

DBRS Morningstar Confirms Province of Ontario at AA (low) and R-1 (middle), Stable Trends

Sub-Sovereign Governments, Utilities & Independent Power
December 17, 2020

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and the Long-Term Debt rating of the Province of Ontario (Ontario or the Province) at AA (low) as well as the Short-Term Debt rating at R-1 (middle). DBRS Morningstar also confirmed Ontario Electricity Financial Corporation’s Long-Term Obligations (bsd. on Prov. Ont.) rating at AA (low). All trends are Stable.

The fiscal and economic impact of the Coronavirus Disease (COVID-19) pandemic has been more severe than first anticipated when Ontario presented its fiscal update in March 2020. The first quarter update released in August 2020, revealed the full extent of the deterioration in the Province's budgetary position as a result of the significant decline in economic activity and the associated increase in spending. A formal 2020 budget was presented on November 4, 2020, which largely maintained the 2020–21 deficit presented in Q1 and now begins to chart a slow path towards fiscal recovery. While this has caused DBRS Morningstar to lower its assessment of key financial risk metrics, there is flexibility within the rating category to endure this deterioration.

The onset of the pandemic in March 2020 has materially weakened Ontario's economic outlook. Economic activity slowed sharply because of federally and provincially mandated shutdowns. Most provinces, including Ontario, are currently in the midst of a significant second wave of coronavirus, which has led to the reintroduction of strict public health measures in several regions and is likely to slow the recovery that had been gaining momentum through late summer and early fall. For 2020, the Province estimates that real GDP will fall by 6.5% and nominal GDP will fall by 5.0%. For 2021 and 2022, the Province has assumed real GDP growth of 4.9% and 3.5%, respectively. This forecast appears to be somewhat conservative relative to the average of recent private-sector forecasts.

The Province is forecasting a budget deficit of $38.5 billion in 2020–21, unchanged from Q1. However, that forecast remains cautious with approximately $8.2 billion in unallocated contingencies and reserves and somewhat conservative GDP growth assumptions. On a DBRS Morningstar-adjusted basis, this equates to a shortfall of $42.7 billion, or 5.0% of GDP, after recognizing capital spending as incurred, rather than as amortized, and assuming a modest amount of capital underspending. DBRS Morningstar believes that there is flexibility within the current budget outlook to accommodate the rising number of coronavirus cases and still leave room for outperformance.

The November 2020 budget is Ontario's first multi-year update since the onset of the pandemic and it begins to chart a path towards fiscal recovery. For 2021–22 and 2022–23, deficits of $33.1 billion and $28.2 billion are projected, assuming budget contingencies and reserves are fully utilized. On a DBRS Morningstar-adjusted basis, this translates into deficits of 4.2% and 3.6% of GDP in 2021–22 and 2022–23, respectively.

Ontario's debt and debt-to-GDP ratio are set to rise sharply. Based on Statistics Canada’s latest GDP estimates and Ontario’s GDP growth assumptions, net debt will rise to 47.0% in 2020–21 from 39.6% in 2019–20. The current outlook, points to net debt-to-GDP reaching 49.5% in 2022–23. The government has yet to adopt new fiscal anchors but has indicated that the next budget will include a new long-term target for net debt-to-GDP.

On a DBRS Morningstar-adjusted basis, debt-to-GDP is projected to reach 48.9% in 2020–21. By 2022–23, adjusted debt-to-GDP is expected to reach 51.1% before stabilizing between 50% and 55% thereafter. This is substantially above the levels reported pre-financial crisis.

A negative rating action could result from the government's failure to reduce budget deficits over the medium term and to stabilize the debt-to-GDP ratio within expectations as outlined above. A positive rating action is not contemplated in the current environment.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at:

All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Canadian Provincial and Territorial Governments (May 13, 2020) and Global Methodology for Government Related Entities (March 10, 2020), which can be found on under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release:

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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

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