This rating does not say everything about a country. It is nevertheless often associated with greater wealth, a better human development index and a better life expectancy, among other things. And in these troubled times, it allows us to put our misfortunes into perspective, if I may say so.
What am I talking about ? From the credit rating. I mention this because Canada is one of the few countries to have maintained its perfect AAA rating for 20 years, despite the financial crisis of 2008, the oil crisis of 2014, the pandemic of 2020 and the war in Ukraine of 2022 .
Better: among the countries of more than 10 million inhabitants, Canada is the one that has maintained this AAA rating for the longest time, ahead of Germany, Sweden, Australia and the Netherlands. And forget the powers like the United States, France or the United Kingdom, Canada does much better. Isn’t it joyful1 ?
The credit rating is established by independent rating agencies taking into account a multitude of factors, such as the government’s indebtedness, the strength of the economy and its industrial diversity, among others. For simplicity, I have chosen the ratings of the agency Standard & Poor’s (S&P), which are more reliable and easier to understand than those of the three other main agencies.
Ultimately, this rating is an indication of the degree of risk that financiers run when they lend to a borrower, in this case the government. As Canada is at AAA, lenders can advance funds with their eyes closed, they will certainly be reimbursed, one might say.
This zero risk allows the Canadian government to finance itself at a very low interest rate, which reduces our collective interest bill.
Where are the other countries? What is the historical context? Let’s see.
First, 11 countries still have a AAA rating, but this number drops to nine when you subtract the two tiny countries of Liechtenstein (less than 30,000 inhabitants) and Luxembourg (640,000 inhabitants). Of the remaining nine, five have more than 10 million inhabitants, including Canada.
Twenty years ago, Canada regained its AAA rating after going through the desert of the 1980s and 1990s. It was, remember, the time of monstrous deficits, which had caused the net debt of the federal government to climb to a historic level of 71% of GDP in 1996.
Today, despite the gargantuan deficits of the pandemic, the federal debt is around 45% of GDP, that says it all.
In 1992, Canada’s rating fell to AA+, having even been given a negative outlook in 1995, a sign of a possible new downgrade. Some then spoke of the quiet “argentization” of Canada, and left-wing movements criticized the supposedly undue influence of rating agencies on our decisions.
Between 1993 and 2002, Paul Martin took the bull by the horns as Liberal finance minister, shoveling – it’s true – a good part of the problems into the backyards of the provinces.
All the same, at the end of the exercise, the federal government’s credit rating had returned to its AAA level in 2002, a rating which has remained at this level until today. This means that Canada – at least the federal government – will have managed to maintain flawless financial credibility with S&P despite all the crises over the past 20 years (financial, oil, pandemic, war).
Our competitors were not so lucky. One after another they lost feathers.
The biggest, the United States, hasn’t been in the AAA club since 2011, devastated by the 2008 financial crisis and the ensuing recession.
Its debt has been growing steadily ever since, and now represents 129% of its GDP, a far cry from 96% in 2011 and 56% in 2001. Ouch!
France was expelled from the AAA club in January 2012, after a chaotic management of its finances, also hit by the 2008 crisis. New haircut for France in November 2013, which went from AA+ to AA. Then, last September, S&P attached a negative outlook to its AA rating, indicating that it could end up at AA-, three ranks below Canada.
Similar portrait in the United Kingdom. The Brexit referendum knocked out its AAA rating in 2016, and five months ago S&P gave the UK’s AA rating a negative outlook amid inflation and political crisis.
Finland, finally, left the AAA club in 2014, falling to AA+2.
In short, Canada is holding up, against all odds, while many others are faltering. It is true that Canada was able to count on its abundance of oil, as was the case of Norway and Australia, also rated AAA.
It is also true that Canada was not as severely affected by the war as the Europeans. And it must be added that Canada will have to reinvent part of its economy to be able to gradually get rid of oil, from which it greatly benefits.
It remains that this comparison consoles. And knowing the link between this AAA and our quality of life, it is not surprising that immigrants from all over the planet want to come and settle here.
1. Some of these countries may have had AAA ratings for longer, but S&P put a negative outlook on them for a while, so Canada has been the most stable AAA club for 20 years among the major countries.
2. Quebec has an AA- rating, which has been on the rise for several years, and which is the 3e among Canadian provinces. In July 2022, the Japan Credit Rating agency raised Quebec’s rating to AAA, the highest possible level.