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“Although the province has not yet tabled a new budget following its June election, indications are that it will be little changed from the May budget, which Moody’s indicated was credit negative for the province,” said Moody’s vice president Michael Yake.

“Failure to redress the fiscal challenges would add further pressures to a debt burden that has worsened in recent years.”

Finance Minister Charles Sousa said the recently re-elected Liberal government remains committed to eliminating the $12.5 billion budget shortfall in three years, and blamed a weak economy and the federal government for the fact Ontario had to “adjust” its deficit targets for the next two years.

“Due to lower revenue growth and federal cuts to transfers, we have adjusted short-term deficit targets but remain on track to balance the budget by 2017-18,” Sousa said in a statement.

“We have cut expenses, and Ontario has become the leanest government in Canada with the lowest per-capita spending of any province.”

But Moody’s said Ontario is facing a greater challenge to return to balanced budgets than previously anticipated, and warned the Liberal government will need to make “a considerable shift from recent trends” on spending if it is to meet its deficit targets.

“Ontario’s rating could be downgraded if the province fails to provide clear signals of its ability and willingness to implement the required measures to redress the current fiscal pressures,” said Moody’s.