Moody's Investors Service Inc. has upgraded Canada's credit rating to a top-notch triple-A, a level it has not reached since 1994, once again placing Canada among an elite group of countries.
The agency cited successful government debt slashing efforts and the receding threat of Quebec separatism among reasons for the upgrade.
"Everything [seems]to be coming together for Canada," explained Steven Hess, a vice-president and senior analyst at Moody's. "This is the highest level of creditworthiness. It puts them at the top of the scale."
Canada had a triple-A rating from Moody's for 20 years, from 1974 to 1994. But the influential credit-rating agency downgraded the country's debt in April, 1994, and again in April, 1995, because of a steep deterioration in the handling of the national debt, a major balance of payments problem, a large current account deficit and a heavily indebted private sector.
"Over the last five or six years, we've seen considerable improvements," Mr. Hess said.
Canada's current account deficit - reflecting the amount of corporate and government money flowing out of the country - is now a healthy surplus, he said. The size of federal and provincial government debt is moving down quickly, compared with the size of the economy, and the amount corporations owe foreigners is falling too.
And support for sovereignty in Quebec seems weak, Mr. Hess noted. Even if the political situation in Quebec changes, Canada's finances are in good shape to be able to absorb a political shock, he said.
Canada and Japan were the only Group of Seven countries not to have a triple-A rating, he said, and now Japan - with its deep economic problems - is alone.
The upgrade assumes that provincial and federal governments will continue to balance their books and pay down debt in the next couple of years, to bring the relative size of Canada's debt more in line with other triple-A countries, Mr. Hess added.
Paul Martin, who kicked off his career as federal Finance Minister with the Moody's downgrade in 1994, was elated.
"I really think this is a Canadian victory, a recognition that over the last seven or eight years, Canadians have really changed the whole economic perspective of the country," he said in a telephone interview. "I just feel very good for my country."
He said the upgrade will increase confidence in Canada's economic future. And he said the federal and provincial governments should be able to live up to Moody's expectation that the national debt will continue to shrink in relation to the size of the economy.
"It certainly puts us in an elite group of countries," said Ted Carmichael, an economist at J.P. Morgan Securities Canada Inc. "If anyone needed a reminder of good things that have been happening in Canada, this does the trick."
The upgrade comes just as Canada is experiencing a rebound in the job market and is leading the G7 in terms of economic growth.
"It's yet another positive for Canada," said Royal Bank of Canada chief economist Craig Wright.
The triple-A rating applies to Canadian bonds issued in Canadian dollars and in foreign currencies. Other federal bond issuers - the Business Development Bank of Canada, Canada Mortgage and Housing Corp., Export Development Canada, Farm Credit Canada, Petro-Canada, Strait Crossing Finance Inc. and the Canadian Wheat Board - were upgraded too. And provincial debt issued by Alberta and British Columbia will also enjoy the top rating.
Generally, governments want a top grade because it means the risk for lenders is lower, and governments with higher ratings usually pay lower interest on bonds.
For Canada, consumers should not expect to see an immediate effect in the form of lower mortgage rates or borrowing rates. That's because most of the information Moody's used to reach its decision to upgrade Canada was digested by Canadian markets long ago, Mr. Carmichael said.
But the higher rating may jolt some foreign investors, especially in Japan and Europe, to take a second look at the creditworthiness of Canada, he said. Canadian corporations and governments issuing long-term bonds may see a slightly lower rate as a result, he added.
There's also a possibility that currency markets will take more notice of Canada now, and give the loonie a bit of a lift, Mr. Wright said. However, the Canadian dollar did not move much on the upgrade yesterday, rising slightly to 63.99 cents (U.S.) from 63.97.
The world's other major credit rating agency, Standard & Poor's Corp., has already given Canada top marks in all categories except long-term bonds issued in foreign currency. In that category, Canada has had a double-A-plus - the agency's second-highest rating - since 1992.