November 7, 2019 — 2019 Ontario Economic Outlook and Fiscal Review
Hi, I’m Gadi Mayman, CEO of the Ontario Financing Authority. Thank you for joining me for the next few minutes.
Yesterday, the Province released its 2019 Fall Economic Outlook and Fiscal Review. I’d like to take this opportunity to provide you with a few highlights and give you an update on our borrowing plans for 2019–20.
Let’s start by looking at the 2019–20 in-year fiscal performance
The province is projected to beat the deficit target set out in the 2019 Budget by $1.3 billion, an improvement to $9.0 billion from $10.3 billion. This reflects the benefits of a strong economy and revenue outlook, and prudent fiscal planning. Ontario currently has a population of 14.6 million with nominal GDP forecast at $884 billion, representing almost 40 per cent of Canada.
Next, let’s look at our long-term public borrowing plan
The Province’s interim borrowing requirement in 2019–20 has decreased to $31.9 billion, $4.1 billion less than the forecast from the 2019 Budget primarily due to the lower deficits in 2018–19 and 2019–20. The borrowing program is forecast to be $31.7 billion in 2020–21 and $31.2 billion in 2021–22. Due to lower deficits, total long-term borrowing requirements over the three years of the current outlook have decreased by a total of $5.5 billion compared to the 2019 Budget forecast.
As of today, we have issued $21.3 billion, which is approximately 67 per cent of our 2019–20 borrowing requirement of $31.9 billion.
Our plan is to continue targeting the range of 70 to 80 per cent of total borrowing for this fiscal year to be in the Canadian dollar market. We will actively assess this target and adjust it further, if needed, to reflect market conditions.
With the release of the Fall Statement, we are now in a position to resume the borrowing program, and will look to return immediately, depending on market conditions. The Province will target completion of its 2019–20 long-term public borrowing before the end of the current fiscal year, and subject to favourable market conditions, engage in pre-borrowing for 2020–21.
Of the $21.3 billion issued, about $14.7 billion, or 69 per cent, was completed in Canadian dollars.
The remaining $6.7 billion, or 31 per cent, has been completed in foreign currencies, primarily in the U.S. dollar market.
Ontario Green Bonds remain a core component of our borrowing program, October marked the fifth anniversary of our Green Bond program. We commemorated the anniversary by publishing a video on the development of the program which can be found on the OFA’s website. We plan to launch the next Green Bond before the end of this fiscal year, and possibly another if market conditions allow.
The Province’s net debt-to-GDP ratio was 39.6 per cent at the end of fiscal year 2018–19 and is forecast to rise to 40.0 per cent in 2019–20 as debt continues to rise more quickly than the growth in Ontario’s GDP. However, the net-debt-to-GDP ratio is now projected to be 0.7 percentage points lower than the 40.7 per cent forecast in the 2019 Budget. This spring, the government set out its objective for Ontario’s net debt-to-GDP ratio to reach more sustainable levels, underpinned by the debt burden reduction strategy. The government remains committed to keeping the net debt-to-GDP ratio, through to 2022–23, to less than the Independent Financial Commission of Inquiry’s forecast for 2018–19 of 40.8 per cent.
The Province’s average borrowing cost so far this year has been 2.27 per cent. To protect the Province from potential increases in interest rates from their historical lows, the government has extended the term of its debt to lower the amount that must be refinanced every year. Going back to the beginning of 2010–11, Ontario has issued $87.9 billion of bonds 30 years or longer to lock in low rates, including $7.8 billion so far in 2019–20.
As a result, the average of Ontario’s debt portfolio has been extended, from 9.7 years in 2009–10 to 11.2 years in 2019–20 as of October 24th. The OFA monitors interest rates daily. It continually assesses and determines, based on demand for its debt and how high interest rates rise across the yield curve, whether it remains cost-effective to continue to extend the term of its debt. The Province currently plans to continue to keep the average term of its debt in the same extended range that it has been over the past five years.
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You can find more fiscal information, as well as detailed economic information, in our Investor Relations Presentation, posted on this website. You can find the 2019 Fall Economic Outlook and Fiscal Review on the Ministry of Finance’s website.
Thank you very much for your time.