Skip to main content

The Globe and Mail

20-year risk of debt default greatest in Ontario: study

A man sits on a bench in front of the Toronto skyline.


Ontario has the greatest risk of defaulting on its debt payments in the next 20 years, while energy-rich Alberta places a surprisingly close second in a ranking of provinces seen as most vulnerable to suffering a Europe-style financial crisis.

"In the medium to long term, public finances in several provinces are unsustainable, raising the spectre of debt crises, damaged credit ratings and federal bailouts if corrective steps are not taken," according to a report released Thursday by the Ottawa-based Macdonald-Laurier Institute. "If such crises occur, they will harm not only the provinces directly concerned, but could affect the entire economy."

Ontario has a 42.9 per cent "probability of default" by 2032, while Alberta's risk is pegged at 42.4 per cent, said the report authored by Marc Joffe, a San Francisco-based consultant at Public Sector Credit Solutions and a former senior director at Moody's Analytics. He estimated Manitoba's default probability at 33.7 per cent within 20 years, New Brunswick's at 23.4 per cent and the remaining provinces ranged from Newfoundland at 18.6 per cent to Quebec at 8.1 per cent.

Story continues below advertisement

Peering deeper into the future with his computerized "budget simulation model," Mr. Joffe said Alberta emerges at the top of the list of provinces susceptible to default within three decades. "Alberta has the most risk at the 30-year threshold as its annual deficits swing its net financial position from a surplus to a large debt. Alberta's risk is attributable to high deficits, the fact that its population is expected by Statscan to age more rapidly than other provinces and because it is heavily exposed to volatile energy revenues," said the 52-page report.

Unless Alberta alters its fiscal course, its likelihood of defaulting is 84 per cent in 30 years, but for now, no province is at risk of default, Mr. Joffe said. "As recent events in the euro zone show, confederations of largely independent governing units contain a serious flaw: When an individual member encounters fiscal distress, the union and its more financially stable members face pressure to bail it out," he cautioned.

But there is plenty of time to tackle the financial challenges in the years ahead, "and it's up to each province to determine some combination of cutting spending and increasing taxes," Mr. Joffe added in an interview from San Francisco. "Far be it for me as an American to tell any particular province exactly how to do it."

In his foreword to the report, economist Don Drummond emphasized that the provinces must carry out a delicate balancing act to avoid jolts in the long term. "Ultimately, governments will need to figure out how to do everything, especially health care, more efficiently so they don't risk bankruptcy and don't raise taxes unacceptably," Mr. Drummond said.

Fortunately, all provinces currently require less than 10 per cent of their revenue to service debt – far from the danger zone of 25 per cent, he noted.

Report an error Editorial code of conduct Licensing Options
As of December 20, 2017, we have temporarily removed commenting from our articles. We hope to have this resolved by the end of January 2018. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to