Shortly after the Liberal Party secured another minority government, the credit rating agency said the spending plans outlined during the campaign would put pressure on Canada’s credit profile.
Credit ratings are used by investors to assess the holder of sovereign debts to repay the company’s capabilities, in this case debt or meet financial obligations.
The liberal cost platform promises $129 billion in new spending over the next four years, and a consecutive deficit that adds nearly $225 billion to federal debt.
The previous Free Government under Prime Minister Justin Trudeau had forecast a $42.2 billion deficit in its economic statement last fall. The Carney Liberals forecast a deficit of $62.3 billion next year. This goes beyond the Trudeau government’s fiscal anchor to maintain a deficit of less than 1% of GDP.
“Canada’s credit strength provides important headroom to weather the financial or economic shock, but an increase in structural deficit will put pressure on the credit profile,” Fitch said.
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The agency said that government minority status could lead to actual spending that is different from the platform, but added that “further financial slack seems inevitable” given the size of the new planned spending.
“Canada is experiencing a rapid, sudden financial degradation driven by a significantly weaker economic outlook and increased government spending during this election cycle,” Fitch said.
“It’s a whole new government and a fundamentally different approach,” he said on April 21. He added that Canada is in “the worst crisis of our lifetimes,” implying a US tariff threat, and that his financial plan “fulfills the moment.”
Conversely, Fitch also focused on “fiscal weakness” reflecting “rapid spending growth amidst the economy stagnation.”
“Top AAA rated”
Canada’s strong credit ratings are often promoted by the Trudeau government, defending it against conservative opposition charges that it has too much debt and has made the country’s economy unstable.
Before the mini-budget came out that fall, then-Finance Minister Krishstia Freeland was asked by a reporter whether Canada could risk being downgraded by a credit rating agency if he surpassed his fiscal guardrail.
“We take Canada’s financial position seriously. Finance sustainability is really important to the government,” she said in December 2024.
A few days later, Freeland resigned from the cabinet as she was scheduled to table her Autumn Economic Statement (FES). Freeland said in a letter of resignation to Trudeau, she informed her that the prime minister has removed her from the finances and that she is still expected to deliver FES.
In her letter, Freeland also criticized Trudeau for using “expensive political gimmicks” when Canada should pay US tariffs, referring to the then-announced two months sales tax leave and $250 checks.
Freeland’s position as finance minister appeared to be under threat shortly after the liberals lost Toronto St. Paul was on the election in June 2024, saying an anonymous source from the Prime Minister’s Office is to blame media Freeland for not effectively communicating the government’s economic agenda.
When asked by a reporter whether Trudeau had guaranteed she would remain as finance minister, she replied, “I am confident that I need to do my job effectively.”
Freeland also said, as finance minister, “You have to say “no” a lot of your time.” “That’s how we maintain our AAA credit rating,” she said in July 2024.
Freeland lost a liberal leadership race with longtime friend Carney. She was appointed Minister of Transport in Carney’s first cabinet in March. The Prime Minister will announce a new cabinet in the coming days.
