Fitch Ratings recently rated Canada, giving a ‘AAA’ rating for unsecured foreign and local bonds.The long-term foreign and local currency Issuer Default Rating (IDR) also got a rating of ‘AAA’ while the short-term foreign currency IDR was rated at ‘F1+’.
The outlook for Canada was rated as stable.
What this means is that Canada is currently viewed as politically stable, advanced and a high income country.
To date, Canada has also had low inflation and has experienced steady growth. It also has a good track record when it comes to managing fiscal matters.
Fitch strongly believes that the Canadian government is able to achieve its balanced budget goal in 2015-2016.
The ‘AAA’ rating was also given by Fitch based on the country’s gross and net general government debt of 88.9% and 84.4% of GDP for 2013 respectively. This remains above the ‘AAA’ median.
Fitch’s concern is that Canada’s high household leverage can pose a big threat to the country’s economy since it is more susceptible to stresses on the market such as interest rate increases and unemployment.
Despite this weakness, the Canadian government has taken several proactive steps in recent years to manage these risks such as introducing stricter rules on insurance for mortgages.
Fitch’s ratings are also based on the assumption that the government will address banking sector and macroeconomic vulnerabilities.
In terms of the stable outlook for Canada, Fitch believes that this rating could only be negatively impacted by severe financial sector stress as well as lower than expected growth due to increased government debt.