Despite the hardship on Ontarians and business caused by the pandemic, there was a 20-year low in insolvencies in Ontario last year.
Insolvencies declined sharply by 24 per cent in 2020, the lowest annual level since 2000, according to the Financial Accountability Office of Ontario (FAO), which released its latest report assessing the impact of the pandemic in the province.
The FAO called this decline in insolvencies "exceptional" among recessionary periods and reflects several unique factors related to the pandemic.
"Lower interest rates helped reduce debt payments faced by consumers, while many creditors offered payment deferrals on loans which helped lessen financial strain during the pandemic," the FAO said in a news release. "Additionally, governments provided significant financial support to households and businesses that bolstered incomes."
Insolvencies declined in all major cities and most industries in Ontario last year. Insolvencies declined in all provinces. Ontario had the third smallest rate of decline behind Alberta and Manitoba.
"Given the ongoing economic challenges related to the pandemic, insolvencies could increase in the medium term and will depend in part on the extent and pace at which government support is phased out," the FAO said. "As well, interest rates are expected to rise gradually which will put upward pressure on debt obligations for many Ontario households."
Among the highlights:
- Prior to the pandemic, Ontario insolvencies hit a seven-year peak of 45,754 cases in 2019, reflecting the impact of rising interest rates on the financial position of households.
- Insolvencies in the January-February 2020 period were 16.8 per cent higher than the same period in 2019. As the pandemic progressed, insolvencies declined by record amounts and by May 2020 were 43.3 per cent lower than a year earlier.
- The three industries hardest hit by the pandemic –– transportation and warehousing, wholesale and retail trade, and accommodation and food services –– all reported fewer insolvencies in 2020.
- In the first quarter of 2021, 41.4 per cent of Ontario businesses indicated that they are unable to take on additional debt. Nearly one-third of businesses in the accommodation and food services industries indicated they could continue operating for less than 12 months before closing or filing for bankruptcy.
The provincial Financial Accountability Office provides independent analysis on the state of Ontario's finances, trends in the provincial economy and related matters important to the Legislative Assembly of Ontario.