Press Release

DBRS Morningstar Confirms Province of Québec at AA (low) and R-1 (middle), Stable Trends

Sub-Sovereign Governments, Utilities & Independent Power, Other Government Related Entities
July 31, 2020

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Long-Term Debt rating of the Province of Québec (Québec or the Province) at AA (low) as well as its Short-Term Debt rating at R-1 (middle). Concurrently, DBRS Morningstar confirmed the Guaranteed Long-Term Debt and Commercial Paper ratings of Hydro-Québec at AA (low) and R-1 (middle), respectively, as well as the Long-Term Debt and Short-Term Debt ratings of Financement-Québec at AA (low) and R-1 (middle), respectively. The trend on all ratings is Stable.

The Coronavirus Disease (COVID-19) pandemic has had a widespread impact on Québec's residents, local economy, and public finances, with Québec having the highest number of confirmed cases of coronavirus of all provinces in Canada. Despite the challenges posed by this pandemic, the Province entered this shock from a position of strength, with strong economic fundamentals, successive budget surpluses and having meaningfully reduced debt in recent years. As such, although large deficits are anticipated and debt will rise, the impact is expected to be temporary and can be readily accommodated without materially eroding the Province's credit profile.

The economic outlook has weakened materially since the onset of the pandemic. Economic activity slowed sharply because of federally and provincially mandated shutdowns. The shutdown in Québec was somewhat broader than that experienced in other provinces, with more pronounced shutdowns of the construction and resource sectors; however, early signs point to a more robust recovery as well. The Province has estimated that real GDP will fall by 6.5% and nominal GDP will fall by 4.0% in 2020. This forecast falls within the range of private-sector forecasts.

Based on the June 2020 economic and fiscal update, Québec is now projecting a deficit of $12.4 billion. This equates to a DBRS Morningstar-adjusted deficit of $20.9 billion, or 4.8% of GDP, after making adjustments to recognize capital spending as incurred. While the forecast remains subject to considerable uncertainty, it reflects a material reduction in own-source revenues from the economic shutdown and a significant increase in one-time expenditures to support households and businesses which have only been partially offset by increased federal transfers.

The Province has not provided an updated multiyear outlook, but has signalled that it plans to return to balance within five years. DBRS Morningstar anticipates that the adjusted deficit should be meaningfully reduced— approaching 2.0% of GDP over the medium term—as the economy gradually recovers and one-time spending measures are no longer required. The government remains committed to balanced budgets and debt reduction.

DBRS Morningstar-adjusted debt is projected to rise by $23.2 billion, or 10.7% in 2020–21, pushing the debt-to-GDP ratio to approximately 54.0%. However, DBRS Morningstar expects that the debt-to-GDP ratio will resume its downward trend and approach 50% over the medium term as one-time fiscal measures lapse and the economy gradually recovers.

Although unlikely, a negative rating could result from a combination of a material erosion in economic fundamentals, sustained large operating deficits, and a significant increase in the debt-to-GDP ratio beyond current levels. A positive rating action is very unlikely through the medium term as the critical rating factors remain well-anchored and debt-to-GDP remains relatively high.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at:

All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Canadian Provincial and Territorial Governments (May 13, 2020) and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (January 22, 2020), which can be found on under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release:

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

For more information on this credit or on this industry, visit or contact us at [email protected].

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