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Moody's Investors Service is giving Ottawa a clean bill of fiscal health following last week's budget, but it's keeping a wary eye on Ontario.

"Canadian federal debt is low and the trend is favourable," Moody's vice-president Steven Hess pointed out in a report.

"The improving deficit and debt trends projected in last week's budget, if realized, are likely to keep the government's borrowing costs low, a further credit-positive feature."

Moody's also highlights the obvious: that the large provincial government sector (read: Ontario) pushes Canada's overall debt to gross domestic product ratio from a relatively healthy 33.9 per cent to roughly 70 per cent. That's in the middle of the range for advanced economies – better than the U.S. and Britain at 90 per cent, but nowhere close to fiscal champion Australia, at 23 per cent.

Budget hawks in Canada, disappointed at the slow pace of fiscal restraint, argue that the country isn't far behind Europe, where serial bailouts have gone to the euro zone's poor cousins.

The big worry is Ontario, which also tabled its budget last week. While Ontario's annual deficit would fall under the budget plan, its debt is continuing to rise, both as a per cent of GDP and overall. The province's debt is expected to peak in 2015, before gradually declining.

Moody's, which has warned Ontario of a possible downgrade, is watching the province closely to make sure the province's Liberal government sticks to its fiscal plan.

"What we're looking for is a credible plan to address their imbalance and stabilize their debt burden," Moody's Ontario analyst Jennifer Wong said in an interview. "We really want to make sure that plan is followed through and implemented."

She acknowledged that the minority status of Liberal Premier Dalton McGuinty's government makes implementation "more challenging." But Ms. Wong said the province still has "significant fiscal flexibility to reverse the recent deterioration."

Ontario is currently ranked double-A-1, Moody's second-highest rating, but with a negative outlook.

In its report on the federal situation, Moody's said the "aggregate" of the provinces is moving toward balance and they're "financially strong."

Even more importantly, there are no Greeces lurking among the provinces. "The probability [of the provinces]requiring extraordinary financial support from the federal government is quite low," Moody's said. "This factor reinforces the federal government's credit quality."

The proof, as Moody's points out, is reflected in borrowing costs. Yields on Canadian government securities have moved in line with other major sovereign borrowers in recent weeks and yields remain below the U.S. and Britain.