Chapter 4: Borrowing and Debt Management
LONG-TERM PUBLIC BORROWING
As an agency of the Ministry of Finance, the Ontario Financing Authority (OFA) manages the borrowing, debt, investment and cash management activities of the Province and Ontario Electricity Financial Corporation (OEFC) in a cost-effective manner.
The forecast long-term public borrowing requirement for 2009–10 is $42.6 billion.
Global financial markets continue to face daunting challenges. The Province is not immune to these conditions. However, the OFA has been able to maintain the pace of its borrowing program.
As at October 7, 2009, $24.0 billion, or 56 per cent, of the long-term borrowing requirement was completed. This figure includes Ontario Savings Bond sales of $1.1 billion.
Despite difficult financial market conditions, the Province maintained a flexible approach to borrowing, monitoring both domestic and international capital markets for cost-effective borrowing opportunities.
Depending on market conditions, the Province plans to borrow 35 to 50 per cent from international markets. This range was announced in the 2009 Budget, and is higher than in previous years due to the size of the borrowing program and the capacity of domestic capital markets. About $11.5 billion, or 48 per cent, of borrowing has been raised from international markets so far in 2009–10, compared to 34 per cent for the entire 2008–09 fiscal year. Bonds issued in foreign currencies were:
- three Global bond issues in U.S. dollars
- Euro Medium-Term Notes (EMTNs) in euros, Swiss francs and Hong Kong dollars.
About $12.5 billion, or 52 per cent, of borrowing was completed in the domestic market through a number of instruments, including:
- syndicated issues
- floating rate notes
- Ontario Savings Bonds
- real return bonds.
- Note: Numbers may not add due to rounding.
DEFICIT AND BORROWING
Like other jurisdictions, Ontario is projecting a larger-than-expected deficit this year. The Province of Alberta, for example, is facing growing deficits for the first time in 15 years. Ontario’s deficit is roughly proportional to Canada’s and significantly less than that of the United States, based on the sizes of the respective economies and populations.
Ontario’s increased deficit will be funded through an increase in both short- and long-term public borrowing. The total long-term public borrowing requirement of $42.6 billion is $7.8 billion higher than the 2009 Budget Plan, and $3.4 billion higher than reported in the First Quarter Ontario Finances. Short-term borrowing will increase by $4.7 billion over the 2009 Budget Plan, but will remain less than nine per cent of the Province’s total debt.
The government will seek approval from the legislature for additional borrowing authority to meet the Province’s increased funding requirements.
OTHER CHANGES IN FINANCING
| 2009–10 | 2010–11 | 2011–12 | |
|---|---|---|---|
| Deficit/(Surplus) | 24.7 | 21.1 | 19.4 |
| Non-Cash Adjustments | 0.5 | (2.5) | (3.0) |
| Investment in Capital Assets | 9.5 | 11.4 | 10.4 |
| Net Loans/Investments | 1.6 | 0.3 | 0.4 |
| Debt Maturities | 14.7 | 15.6 | 15.6 |
| Debt Redemptions | 0.4 | 0.4 | 0.4 |
| Total Funding Requirement | 51.5 | 46.3 | 43.1 |
| Canada Pension Plan Borrowing | (1.1) | (0.8) | (1.1) |
| Decrease/(Increase) in Short-Term Borrowing | (7.8) | (3.8) | (1.9) |
| Increase/(Decrease) in Cash and Cash Equivalents | 0.0 | (2.0) | (1.0) |
| Total Long-Term Public Borrowing Requirement | 42.6 | 39.7 | 39.1 |
- Note: Numbers may not add due to rounding.
DEBT
Total debt, which represents all borrowing without offsetting financial assets, is projected to be $213.2 billion as at March 31, 2010, compared to $176.9 billion as at March 31, 2009.
Ontario’s net debt, the difference between total liabilities and total financial assets, is projected to be $184.1 billion as at March 31, 2010, compared to $153.3 billion as at March 31, 2009.
Accumulated deficit is the difference between total liabilities and total assets. It represents the total of all past annual deficits minus all past annual surpluses, including prior-period adjustments. Accumulated deficit is projected to be $138.0 billion as at March 31, 2010, compared to $113.2 billion as at March 31, 2009.
DEBT-TO-GDP RATIOS
In 2008–09, the most recent year for which data are available for all jurisdictions, Ontario’s net debt-to-GDP level was near the median for the provinces and Canada.
In 2008–09, Canada’s and Ontario’s net debt-to-GDP ratios were below those of G7 countries.
TOTAL DEBT COMPOSITION
Total debt is composed of bonds issued in both the short- and long-term public capital markets and non-public debt.
Public debt totals $175.3 billion, primarily consisting of bonds issued in the domestic and international long-term public markets in 10 currencies. Ontario also has $18.0 billion outstanding in non-public debt issued in Canadian dollars. Non-public debt consists of debt instruments issued to public-sector pension funds in Ontario and the Canada Pension Plan Investment Board (CPPIB). This debt is not marketable and cannot be traded.
COST OF DEBT
The effective interest rate (on a weighted-average basis) on total debt was 4.85 per cent as at September 30, 2009 (March 31, 2009, 5.17 per cent). For comparison, as at March 31, 1993, the effective interest rate on total debt was 10.14 per cent.
RISK EXPOSURE
The Province limits itself to a maximum net interest rate resetting exposure of 35 per cent of debt issued for Provincial purposes and a maximum foreign exchange exposure of five per cent of debt issued for Provincial purposes. As at September 30, 2009, the net interest rate resetting exposure was 13.1 per cent and foreign exchange exposure was 0.2 per cent.
All exposures have remained well below policy limits in 2009–10.
