TORONTO — The Financial Accountability Office of Ontario (FAO) projects that Ontario’s budget deficit will quadruple to $41 billion in 2020-21, the largest in Ontario’s history.
The FAO’s Spring 2020 Economic and Budget Outlook report issued May 11 outlined how the partial shutdown of the Ontario economy due to the COVID-19 pandemic will deliver a blow to the province’s revenues and increase spending.
The FAO stated in a summary that higher deficits will result in increased borrowing and debt, raising Ontario’s net debt-to-GDP ratio to a record 49.7 per cent in 2020-21, up almost 10 percentage points from last year. Even as the economy recovers through 2021, Ontario’s debt burden would remain elevated at 48.7 per cent of GDP next year.
The report stated, “Ontario’s economic recovery will depend on the success of the pandemic containment measures and the pace at which the economy can be safely reopened. Assuming the pandemic shutdown is gradually eased through the summer, the FAO projects that Ontario’s economy will steadily strengthen into 2021, helping to reduce the budget deficit to $25.3 billion in 2021-22.”
If Ontario’s economic recovery is delayed, budget deficits and provincial debt would be much higher, pushing Ontario’s net debt-to-GDP ratio above 52 per cent next year.
The report predicts:
- The COVID-19 pandemic and government measures to contain the virus will have a significant impact on Ontario’s economy, with real GDP projected to decline by a record nine per cent in 2020.
- Ontario revenues are projected to drop by $21.7 billion or 14 per cent in 2020-21, much larger than the revenue decline that occurred during the 2008-2009 global financial crisis.
- The FAO’s projection of a $41-billion budget deficit in 2020-21 would be considerably larger than the province’s previous record deficits of $19.3 billion in 2009-10 and $12.4 billion in 1992-93.
- Ontario’s interest on debt is projected to increase to 9.8 cents of every dollar of revenue in 2020-21, up from 8.0 cents in 2019-20.