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“Ontario’s economic outlook has weakened over the past year, leading to lower expectations for revenue growth,” the FAO said. “The province’s credit rating would face downward pressure if economic growth was weaker than expected.”

Budget deficits every year since 2008-09 with continued projected deficits until 2022-23 add risk to the outlooks by ratings companies along with challenges for spending targets because of population growth and previous fiscal constraint, the FAO said.

An economic downturn or a significant departure from current spending plans could lead to a deterioration in Ontario’s credit health

There are also structural barriers to Ontario’s revenue growth such as heavily indebted households and an uncertain trade and investment climate that could limit the government’s flexibility on tax policies, according to the report.

“The government’s budget plan depends heavily on sustained economic growth and success in limiting spending,” the FAO said. “An economic downturn or a significant departure from current spending plans could lead to a deterioration in Ontario’s credit health.”

It referred to how in December, Moody’s had downgraded its credit rating to AA-, the fourth highest investment grade level, from AA and revised its outlook to stable from negative. Fitch Ratings Co. kept its AA- rating and also upgraded its outlook to stable from negative.

DBRS has the same rating and outlook while Standard & Poor’s has an A+ rating, the fifth highest investment grade level, and a stable outlook.

The province has benefitted from low interest rates as the Bank of Canada has stalled on increases this year to leave the benchmark rate at 1.75 per cent, partially easing pressure on loan repayments by Queen’s Park.

“However, there is the risk that large borrowing requirements in the next few years combined with a steeper-than-expected increase in interest rates could accelerate the accumulation in debt and put downward pressure on the province’s credit rating,” the FAO said.

• Email: cmcclelland@postmedia.com