Canada's proposed 2025 budget "underscores the erosion of the federal government’s finances," Fitch Ratings said Thursday, warning that "persistent fiscal expansion and a rising debt burden have weakened its credit profile and could increase rating pressure over the medium term."
The AA+/Stable-rated nation's challenges may worsen due to "persistent economic underperformance caused by tariff risks and structural challenges, including low productivity," the agency added.
The Nov. 4 budget widens the FY25-26 federal deficit to C$78.3 billion (2.5 per cent of GDP), yielding a general government deficit of 3.3 per cent — "higher than the ‘AA’ median of 2.3% and substantially higher than Canada’s pre-pandemic deficits which averaged 0.4% in the two decades prior to 2019.
"General government gross debt is projected to reach 91.8 per cent of GDP in 2025, accelerating to 98.5% by 2027, nearly double the forecast ‘AA’ median of 49.6%."
Fitch cautioned that "the Canadian government has a track record of upward deficit revisions," with new non-binding fiscal rules at "high risk of further deterioration."
Most recently, "the government breached all three Budget 2024 guideposts." Despite C$280 billion in capital spending, cuts total just C$60 billion over five years, protecting key programs.