Latest news with #credit rating
Yahoo
3 days ago
- Business
- Yahoo
Will Canada's double whammy of tax cuts and defence spending hurt its AAA credit rating?
Canada's top-tier credit rating remains intact despite a post-election surge in federal spending and tax cuts, according to a new Desjardins report — but growing debt and a costly NATO defence commitment could threaten that standing in the years ahead. Canada currently holds some of the highest possible credit ratings among advanced economies — AAA from S&P, Aaa from Moody's and AA+ from Fitch — making it one of the best-rated bond issuers in the G7. Desjardins' report says that standing appears safe for now, despite growing fiscal pressures. 'The likely substantial increase in borrowing ahead probably doesn't mean much for the government of Canada's top-notch credit rating, at least in the near term,' it said. A sovereign credit rating is both an absolute and a relative assessment. On an absolute basis, it reflects a sovereign country's outstanding debt and its capacity to manage it, while also taking into account the relative credit developments of other sovereign countries. At NATO meetings at the end of June, member countries agreed to increase defence spending up to five per cent of their GDP by 2035. The spending is to be divided into core defence expenditures of 3.5 per cent and 1.5 per cent in defence-adjacent spending, according to Desjardins. For Canada, which lags behind its fellow NATO members in spending, this is a significant increase from its current defence outlay of 1.4 per cent of GDP. It has now committed to raising that number to two per cent by the end of the 2025-26 fiscal year. Randall Bartlett, chief economist at Desjardins, said that the spending could impact Canada's AAA credit rating. 'Canada has a lot of things going for it on the fiscal front. But over time, if our fiscal situation erodes, particularly if we can't find those savings, that does put Canada in a precarious position of potentially putting our AAA credit rating at risk,' he said. Bartlett noted that Canada has a long way to go to close the gap with its NATO partners, and a much further way to go than most other members to meet the new requirements. 'For the amount of spending that requires, the share of GDP is going to be a lot higher in Canada than it is in other countries, and that's certainly going to increase the debt burden of the federal government,' he said. According to IMF forecasts cited in the report, Canada's gross general government debt as a share of GDP would need to be about seven per cent higher if defence expenditure is to reach 3.5 per cent of GDP by 2030. This is assuming no new spending and/or revenue cuts are introduced in other sectors to offset military spending. Bartlett reiterated that, in the near-term, Canada's rating is safe due to its strong fiscal positioning. However, he emphasized that the debt to GDP ratio will move higher. The new NATO defence spending framework could prove to be an issue for countries like Canada who have committed to meeting the targets and might find it hard to live up to that commitment, Bartlett said. He also raised concerns regarding Canada's fiscal path moving forward, citing the lack of information from the government. 'I think the fiscal path in Canada is certainly headed in the wrong direction at this point. Not only is spending higher, but the federal government has decided to cut taxes at the same time. That could put us in a very challenging situation in the future, which would potentially require deeper savings through spending cuts and lead to some very difficult choices,' Bartlett said. Michael Wernick: Canada needs a Defence and Security Tax to meet its new NATO commitments head on Expect higher deficits to meet Canada's 5% NATO defence spending target He further emphasized that the lack of a fiscal plan is a major concern, especially considering the dynamics of the global economy. 'I think it is deeply concerning, because not only does our forecast and those of others show that the GDP ratio is rising consistently over time, but it speaks to a lack of transparency in financial reporting (from the government)' he said.
Yahoo
4 days ago
- Business
- Yahoo
Milei Wins Second Upgrade by Moody's on Easing FX Controls
(Bloomberg) -- Argentina's credit rating was upgraded by Moody's Ratings for a second time this year, with the agency citing the easing of currency controls and support from the International Monetary Fund. The Dutch Intersection Is Coming to Save Your Life Advocates Fear US Agents Are Using 'Wellness Checks' on Children as a Prelude to Arrests LA Homelessness Drops for Second Year Manhattan, Chicago Murder Rates Drop in 2025, Officials Say Moody's raised the country's credit score by two notches, to Caa1 from Caa3, on par with Egypt and Suriname, according to a statement on Thursday. The nation's outlook was changed to stable from positive. The upgrade comes amid President Javier Milei's attempts to transform South America's second-largest economy. Strategists and analysts alike have lauded the libertarian's efforts to tamp down rampant inflation and reverse years of endemic budget deficits. 'The upgrade reflects the decrease in the risk of a credit event, as the gradual lifting of foreign exchange restrictions enables a transition toward a more robust foreign exchange regime anchored on building international reserve buffers,' Moody's said in a note. Milei's policies have brought price increases to less than 2% a month, with annual inflation now at its lowest since 2020. He's also put the country on track for a primary surplus in 2025, the first in over 15 years, easing the debt burden. The economy returned to growth this year, expanding 7.7% in April, more than expected. But Wall Street has cautioned that despite a new IMF program and more liberal exchange regime, Milei and his team need to amass more hard-currency reserves, something that authorities have pledged they won't do until the peso trades at around a level of 1,000 per dollar. It is currently above 1,200. Another chief concern is whether Milei manages to expand his legislative support during midterm elections later this year. The vote is a key test of support for the administration's harsh belt-tightening campaign. Argentina's dollar bonds underperformed their peers on Thursday before the upgrade was announced, with notes maturing in 2035 losing 0.6 cents on the dollar to trade at around 64 cents, according to indicative pricing data compiled by Bloomberg. The notes now yield 11.94%. Moody's Ratings lifted Argentina's credit score one notch to Caa3 in January, and raised the outlook to positive from stable. Fitch Ratings then raised the nation to CCC+ from CCC in May. S&P Global Ratings affirmed its CCC rating in early February. --With assistance from Nicolle Yapur. (Updates with inflation figures in the fifth paragraph, bond prices in the eighth) How Starbucks' CEO Plans to Tame the Rush-Hour Free-for-All What the Tough Job Market for New College Grads Says About the Economy Forget DOGE. Musk Is Suddenly All In on AI The Quest for a Hangover-Free Buzz How Hims Became the King of Knockoff Weight-Loss Drugs ©2025 Bloomberg L.P.
Reuters
5 days ago
- Business
- Reuters
Japan must be mindful of credit rating downgrade risk, bank lobby head says
TOKYO, July 17 (Reuters) - Japan must be mindful of the risk of a credit rating downgrade if an expansion in public debt runs out of control, the head of the country's banking lobby said, as lawmakers ramp up calls for big spending ahead of an upper house election on Sunday. Japanese government bond (JGB) yields rose to multi-decade highs this week on market expectations that a strong performance by opposition parties calling for big spending and tax cuts could lead to an increase in Japan's already huge debt-pile. Junichi Hanzawa, chairman of the Japanese Bankers Association, said the recent rise in bond yields likely reflected investors' anxiety over the market outlook. "If debt expansion runs out of control, it could become difficult for the government to smoothly sell bonds in the market" as the balance of Japan's public debt is already extremely high, Hanzawa told a news conference on Thursday. "If this happens, we must be mindful of the risk of a JGB credit rating downgrade," he said. Recent media polls showed Prime Minister Shigeru Ishiba's ruling coalition could lose its majority in the upper house election. Such an outcome could force Ishiba to abandon his hawkish fiscal tilt, boost spending and heed opposition calls to cut Japan's sales tax rate, analysts say. Moody's Ratings has said an increase in tax cut pressure could be negative for Japan's rating depending on the size and duration of the cut. It rates Japan A1, the fifth-highest level. A credit rating downgrade could trigger a triple selling of JGBs, yen and Japanese stocks - and boost the cost of dollar funding for Japanese banks.
Bloomberg
5 days ago
- Business
- Bloomberg
Japan Banks Flag Debt Downgrade Risk as Yields Jump Before Vote
Japan's biggest bank industry group warned of the risks of a downgrade in the nation's credit rating as politicians make election pledges that could swell the public debt. A recent jump in yields reflects mounting uncertainty in the government bond market ahead of the upper house election on Sunday, Japanese Bankers Association Chairman Junichi Hanzawa said at a regular news briefing in Tokyo on Thursday.
Bloomberg
7 days ago
- Business
- Bloomberg
Senegal Bonds Rally on Prospects GDP Rebase Will Cut Debt Ratios
Senegal's dollar bonds rallied after the country's finance ministry said a recalculation of economic data could improve debt ratios. Yields on Senegal's 2033 dollar securities plunged as much as 31 basis points to 13.45%, retreating from near a record high reached after S&P Global ratings downgraded the nation's credit deeper into junk.
