A measure of Canada’s sovereign debt was downgraded a notch by Fitch on Wednesday, with the ratings agency citing “deterioration of Canada’s public finances in 2020 resulting from the coronavirus pandemic.”
The country will run a “much expanded” general government deficit this year and emerge from recession with much higher public debt ratios, Fitch said, knocking the country’s AAA Long-Term Foreign Currency Issuer Default Rating down to AA+.
However, the country’s debt “ceiling” was maintained at AAA and its short-term debt was also affirmed, according to Kelli Bissett-Tom, director and primary rating analyst at Fitch.
While the ratings agency said the higher deficit is largely being driven by public spending to counteract a sharp fall in output as swathes of the economy were shuttered to contain the spread of the coronavirus, the economy’s investment and growth prospects will continue to “face challenges.“
Lower credit ratings generally make it more expensive to borrow money and a country’s credit ratings can have an impact on the functioning of the rest of the economy because sovereign debt is often pegged as the ceiling for corporate credit ratings.
However, Fitch said Wednesday that it was not downgrading Canada’s big banks.