Even in a time of economic uncertainty, they have to give credit where credit is due.
Despite the threat of a trade war with the U.S. and rising unemployment, Ontario got some very positive fiscal news this year.
The province’s credit rating was upgraded to “AA-” from “A+(P)” by S&P Global last week, the first such improvement from that agency since 2001.
That followed a credit upgrade in June to “AA” from “AA (low) (P)” by Morningstar DBRS, which had last boosted Ontario’s ranking in 2006.
For Finance Minister Peter Bethlenfalvy that means much more than just an alphabet soup of ratings decipherable only to those on Bay Street and Wall Street.
“Bond holders are looking at who is managing their credit most effectively. It leads to lower interest costs,” Bethlenfalvy said in an interview with the Star this week.
“Ultimately, what that means is that your borrowing costs … are lower,” said the treasurer.
According to the most recent public accounts, Ontario’s interest expenditure dropped from $12.4 billion in 2022-23 to $11.4 billion last fiscal year — a savings of $1 billion.
“That’s $1 billion you have to pay down debt, you can invest in health care, you’ve got options for your priorities,” he said.
“When you have to borrow in the bond markets — which we continue to do, primarily for infrastructure because we’ve got an ambitious plan — investors have choices,” said Bethlenfalvy, referring to the billions the province is borrowing to fund subways, highways, hospitals and other projects.
“So how do you stand out amongst all those that are issuing bonds and get the lowest rate? They look at your fiscal track record, they look at your credit ratings, they look at a host of factors. This is a vote of confidence in Ontario.”
That’s especially important to Bethlenfalvy, who was co-president of DBRS when the rating agency downgraded Ontario to “AA (low)” from “AA” in 2009 after the global financial crash.
“I was there, of course, and now, whoops, the shoe is on the other foot,” the treasurer mused.
“Having worked in the capital markets and at a credit-rating agency — working both in New York and Toronto — I’ve seen capital markets, I’ve seen sovereigns and how they manage their debt. And I think it still matters,” he said.
“It matters because you don’t know what’s around the corner, whether it’s a pandemic or … a financial crisis (like) 2008. We’re dealing with economic uncertainty all the time so I think it’s wise to be prudent on the fiscal side and to have targets — and that’s what rating agencies like.”
Credit raters also like fiscal capacity so Premier Doug Ford’s frequent boast that he has “never raised a tax” is not unhelpful because it suggests the province has untapped revenue streams if need be.
Bethlenfalvy, who has no plans to raise any taxes, counters that by noting rating agencies “like it when you grow your economy, because that increases your tax revenues.”
He emphasized that S&P upgraded Ontario’s rating after he announced the province would spend $3 billion to send $200 “rebate” cheques to 15 million Ontarians in the new year despite running a $6.6-billion budget deficit.
“If I can point out, under the previous government — 15 years — taxes were raised and credit ratings fell,” said Bethlenfalvy, referring to the Liberals of premiers Dalton McGuinty and Kathleen Wynne who governed from 2003 to 2018 and suffered two S&P downgrades, one from DBRS, two from Moody’s and one from Fitch.
“Obviously S&P and other rating agencies have confidence that we’re very committed to our fiscal track.”
