By Canadian Press

Fitch Ratings issues new warning over federal spending, government debt

Aug 27, 2020 | 2:45 PM

OTTAWA — A major global credit rating agency is issuing a new warning about federal debt that it says may become more difficult to tackle once the pandemic passes.

Fitch Ratings downgraded Canada’s triple-A credit rating in June, dropping the country to an “AA+” rating over what it called “the deterioration of Canada’s public finances” due to COVID-19.

The decision came out before the Liberals released an updated outlook in early July for federal spending, which projected a deficit of $343.2 billion and a debt of over $1.2 trillion.

Those figures were before the Liberals promised last week to spend $37 billion to revamp income support programs for hard-hit workers.

Fitch says in a note that gross government debt will be 120 per cent of economic output, which is “significantly higher” than the median for a double-A rating.

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The ratings agency said it expects government spending to drop sharply starting in 2021, but the growing deficit will make reining in spending and the debt more challenging over the medium-term.

This report by The Canadian Press was first published Aug. 27, 2020.

The Canadian Press