We are pleased to present the Ontario Financing Authority’s 2004 Annual Report. The report outlines the Authority’s responsibilities, accomplishments and financial results for the year April 1, 2003 to March 31, 2004, and includes objectives for the next year.

The Ontario Financing Authority was able to achieve its primary goal of borrowing $25.4 billion for both the Province and the Ontario Electricity Financial Corporation (OEFC) at competitive terms and conditions in the long-term public markets.

There were a number of challenges and new developments in 2003. Ontario’s economy experienced slower growth than expected as unanticipated events such as the outbreak of Severe Acute Respiratory Syndrome (SARS) and the power blackout in August 2003 caused reductions in both tourism and consumer spending. Ontario’s growth subsequently slowed to just 1.3 per cent in 2003, following a 3.6 per cent advance in 2002.

In October 2003, Ontarians elected a new government, headed by Dalton McGuinty. Shortly after the election, the Premier-designate asked former Provincial Auditor Erik Peters to conduct an independent review of the Province’s finances. In his review, Mr. Peters concluded that Ontario faced a projected deficit of $5.6 billion for 2003-04. By December 2003, when the Minister of Finance, Greg Sorbara, released the 2003 Ontario Economic Outlook and Fiscal Review, it was determined that the Province had a structural deficit caused by several years of faster growth in program spending than in government tax revenues. The 2004 Ontario Budget reported an interim deficit of $6.2 billion.

With the 2004 Ontario Budget, the government put in place a multi-year fiscal plan. The plan includes steadily declining deficit targets of $2.2 billion in 2004-05, $2.1 billion in 2005-06 and $1.5 billion in 2006-07. Ontario’s books will be balanced by 2007-08.

Long-term public borrowing requirements for 2004-05 are forecast at $23.8 billion, a $1.6 billion decrease from 2003-04. While the Province expects to borrow as a result of projected deficits in the medium-term, the most significant component of the borrowing program will be the refinancing of maturing debt. Debt maturities for the Province and OEFC are estimated at $16.1 billion in 2004-05, $18.9 billion in 2005-06, $13.9 billion in 2006-07 and $15.3 billion in 2007-08.

The level of borrowing requirements anticipated over the next four years underscores the importance of cost-effective borrowing and debt management activities to minimize debt interest costs and their subsequent impact on the government’s fiscal plan.

The OFA will continue to work on a number of other initiatives in 2004-05. These include assisting with the electricity-sector reforms being introduced by the government, overseeing the management of segregated investment funds for the future nuclear decommissioning and used fuel costs of Ontario Power Generation, providing advice on investment in capital infrastructure and the investing of pooled funds and supporting the new Ontario Strategic Infrastructure Financing Authority.

We both are looking forward to working with the staff at the OFA in the upcoming year and we are confident that the OFA will continue to execute its responsibilities in supporting the government to achieve its fiscal and financial objectives.

Colin Andersen
Chair