With our record deficit, I feared that the credit agencies would downgrade Quebec, as they did with British Columbia last spring. Or at least that they give us a negative outlook, a precursor to a discount.
Published at 1:52 a.m.
Updated at 6:30 a.m.
The news would have shaken the CAQ government and sowed doubt about its management of public finances. An increase in the interest rates charged by lenders would have followed, with its consequences on our finances.
However, the downgrade did not come. Instead, the four agencies that follow Quebec announced, one after the other, that they are maintaining Quebec’s enviable rating. And their explanations for this maintenance denote great confidence in the CAQ government and, more broadly, in Quebec’s economy and the stability provided by the Generations Fund.
Quebec has a long-term rating of AA-, according to the S&P Global agency typology. This rating is the 4e best on a list of about twenty. The three other agencies (Moody’s, Fitch and DBRS) have similar ratings for Quebec, expressed differently.
Among the provinces, Quebec is the 2nde highest rated, after Saskatchewan (AA). For comparison, the Canadian federal government is at AAA, which is the best possible rating, and France is at AA-.
How do the agencies justify this maintenance, despite our record deficit of 7.3 billion in 2024-2025?1 ?
Explanation from S&P in its report: “Despite recent financial difficulties, the Coalition Avenir Québec government remains focused on maintaining conservative policies targeting budget balance and debt reduction. »
The S&P agency says it expects the government to “quickly” remedy the budgetary problems and gradually migrate towards modest deficits, thanks to an economic recovery and despite the electoral temptations of the next elections.
On the subject of debt, the Moody’s agency praises the Generations Fund and its fairly consistent management since 2006, despite changes in government.
Hope in productivity gains
Moody’s notes that the labor force participation rate is higher here than elsewhere in Canada, a positive factor. She points out that aging is likely to harm tax revenues, although retirees will still pay taxes on their pensions.
S&P says it is convinced that Quebec will eventually make productivity gains.
Although it will take time, productivity gains will help support Quebec’s economic growth and mitigate the impacts of the aging population and labor shortage.
Excerpt from the S&P report
Another favourable factor, according to Moody’s: “The province maintains strong relationships with investors, both domestically and abroad, to ensure it is able to attract a broad range of potential investors, a necessity given the large annual borrowing programs,” the agency wrote in its report.
In short, Finance Minister Eric Girard and his team have convinced the agencies that their plan to return to a balanced budget will work. And that lenders can sleep soundly: Quebec will honour its interest payments on its debt in full.
These findings clash with the financial portrait of Quebec that I gave in my column last Friday entitled “Our welfare state has big challenges”. I explained that Quebec has the 7e highest level of spending among industrialized countries, as a proportion of its GDP.
Read the column “Our welfare state faces big challenges”
How to explain this difference? This is because rating agencies measure a state’s ability to generate revenue to finance its expenses and pay its debts. However, Quebec manages to do this with its taxpayers – individuals and businesses – something that a province like Alberta, for example, which is allergic to taxes, could not do at the same level.
Another element: Quebec has a highly diversified economy, sheltered from the vagaries of a particular sector. Moody’s gives as examples of this diversity the manufacturing, pulp and paper and aluminum sectors, but also those of high technologies, aeronautics and telecommunications.
Like a sovereign country… or almost
Interesting aspect: Moody’s states that Quebec and the Canadian provinces “benefit from much greater autonomy [budgétaire] than their counterparts in other countries, including German states and Australian states.
This autonomy helps provinces weather economic downturns or events like the pandemic, she says.
Fiscal policy [des provinces] is more similar to that of sovereign governments than to that of many of their sub-sovereign international peers.
Excerpt from Moody’s report
The agency points out, however, that its rating is also based on the fact that in the event of liquidity problems, Quebec could count on “extraordinary support from the Canadian government.” She also notes that Quebec can count on the stability and recurrence of significant federal transfers, particularly in health.
Quebec is not, however, immune to a change in the agencies’ mood. S&P indicates that it could downgrade Quebec if its budgetary performance were to persistently result in deficits greater than 10% of total revenues (including capital expenditures for infrastructure in the deficit).
However, Quebec has clearly crossed this 10% threshold this year. Its deficit after capital expenditure reached 12.2% in the year ended March 31. It will increase to 14.4% for the current year, before falling to 12.1% the following year, according to what S&P indicates in its report.
Clearly, S&P believes Eric Girard when he explains that this threshold will fall below 10% in 2026-2027.
By comparison, British Columbia has a deficit after capital expenditures that will reach 20.1% this year. And his erratic financial management has made S&P lose patience, hence the recent downgrade.
Read the column « The risks of budgetary neglect »
What can we conclude from this? That our welfare state is viable, but that it would be seriously shaken if our budgetary management slipped up.
1. The deficit of 7.3 billion is before the provision for contingencies and before payments to the Generations Fund.
