Canada among elite that will maintain AAA status

A new report from Citibank has praised Canada for its economic and political consistency, qualities they say are important with ratings firms, especially as other monoliths fall in status.

Canada remained in the elite top 12 countries to maintain a AAA credit rating from each major credit agency this year. Until last August, the United States was a part of this group as well, but lost that standing when they were surprised with a downgrade to AA.

“Canada and the Scandinavian countries are the only countries covered in our Sovereign Ratings Outlook that we believe rating agencies will maintain a ‘AAA Stable’ status both in the near- and longer-term,” a group of Citibank economists wrote.

They believe that by 2015, Canada will still hold onto its AAA status along with just Denmark, Sweden, Switzerland and Norway. Current AAA rated countries such as France are expected to fall victim to the debt crisis by this time.

“When you think about Canada maintaining its AAA, well, we will have surpluses, we will have balanced budgets across the board, even in Ontario, in the years ahead. Investors are also interested in the question of whether there is a political desire to keep budgets balanced over time. For Canada, I think the answer is yes,” Michael Gregory, senior economist at BMO Capital Markets, told Financial Post.

Maintaining this rating will help Canada hold onto and attract even more foreign investments, something that has yet to be an issue for the country. Foreign buyers have purchased large quantities of Canadian securities over the past two years.

After maintaining a surplus in the budget for over a decade, Canada fell back into a deficit during the economic crisis of 2008, building up a deficit of $55.6 billion by the time 2010 came around. That number has been shrinking ever since, and some are projecting it will fall to $20 billion by the end of 2012. The federal government expects the return of a surplus by 2015.

While this is great news for Canada, there is still a downside to all the attention. As foreign interest keeps the Canadian dollar strong and above parity with the U.S. dollar, Canada’s export businesses suffer – and the strong rating will likely mean Canada’s dollar will maintain its strength.

Sources: Citibank, Huffington Post, Financial Post

Photo © Korzekwa

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