November 16, 2018
Hi, I’m Gadi Mayman, CEO of the Ontario Financing Authority. Thank you for joining me for the next few minutes.
Yesterday, the Province released its 2018 Fall Economic Outlook and Fiscal Review. I’d like to take this opportunity to provide you with a few highlights of how this will affect our borrowing program for 2018–19.
Let’s start by looking at our long-term public borrowing plan for this year
Ontario’s 2018 Fall Statement projected a deficit of $14.5 billion in 2018–19. This is a $0.5 billion improvement compared to the baseline for planning provided by the Independent Financial Commission of Inquiry in its report.
The Province’s total long-term borrowing in 2018–19 is now forecast to be $33.2 billion, $1.9 billion less than the forecast for 2018–19 based on the findings of the Commission of Inquiry. With the release of the Fall Statement, we are now in a position to resume the borrowing program, and will look to return immediately, depending on market conditions.
The Province will target completion of its 2018–19 long-term public borrowing before the end of the current fiscal year, and subject to favourable market conditions, engage in pre-borrowing for 2019–20.
As of today, we have issued $25.9 billion, which is approximately 78 per cent of our 2018–19 borrowing requirement of $33.2 billion.
Of the $25.9 billion issued, about $20.2 billion, or 78 per cent, was completed in Canadian dollars. Our current plan is to complete approximately 70 per cent of total borrowing for this fiscal year in the Canadian dollar market. We will actively assess this target and adjust it further, if needed, to reflect market conditions.
The remaining $5.7 billion, or 22 per cent, was issued in foreign currencies, primarily in the U.S. dollars and Euro markets.
The Province plans to issue its next Green Bond by the end of the fiscal year, after realigning the program to support the new government’s approach to addressing environmental challenges.
In 2018–19, the net debt-to-GDP ratio is projected to be 40.5 per cent, 0.3 percentage points lower than the Commission’s baseline forecast for 2018-19. The Commission’s net debt forecast has not been revised, but its net debt-to-GDP forecast had to be updated, in order to ensure transparency and comparability, from 40.5 per cent to 40.8 per cent to reflect Statistics Canada’s revision to Ontario’s GDP numbers released on November 8th in its Provincial and Territorial Economic Accounts.
As recommended by the Commission, the government will conduct analysis to determine and set an appropriate target and timeline to reduce the Province’s ratio of net debt to GDP to a sustainable level.
The global decline in interest rates over the last 25 years has begun to reverse. This decline has meant that in spite of the Province’s debt load increasing substantially, particularly over the past 10 years, Interest on Debt, or IOD, has not risen as quickly. However, with interest rates now rising, the Province faces higher IOD costs going forward.
Our interest rate forecast for Ontario debt issued in 2018–19 is more than one and a quarter percentage points higher than the low point in 2016–17. A further one percentage point increase in interest rates above that forecast would add an additional $450 million in interest costs in the first full year.
To protect the Province from this increase in interest rates, the government has extended the term of its debt to lower the amount that must be refinanced every year. Going back to the beginning of 2010–11, Ontario has issued $77.3 billion of bonds longer than 30 years to lock in low rates.
As a result, the weighted-average term to maturity of long-term Provincial debt issued has been extended significantly, from 9.7 years in 2009–10 to 10.9 years for 2018–19 as of October 31, 2018. The OFA monitors interest rates daily. We continually assess and determine, based on demand for Ontario debt, and how high interest rates rise across the yield curve, whether it remains cost-effective to continue to extend the term of the Province’s debt.
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You can find further fiscal information, as well as detailed economic information, in our Investor Relations Presentation, posted on this website. You can also find the Fall Economic Statement on the Ministry of Finance’s website.
Thank you very much for your time.