Queen's Park's measures to contain the spread of the COVID-19 virus will result in the largest budget deficit in Ontario's history.
The Financial Accountability Office of Ontario (FAO) released its Spring 2020 Economic and Budget Outlook with a forecast that indicates the partial shutdown of Ontario's economy due to the pandemic will deal a "severe blow to the province’s revenues," causing an increase in spending, and result in substantially higher deficits and debt.
The FAO projects Ontario’s budget deficit will quadruple to $41 billion in 2020-21.
Higher deficits will result in sharply 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, the FAO said Ontario’s debt burden would remain elevated at 48.7 per cent of GDP next year.
The effectiveness of the recovery will depend on the success of the pandemic containment measures and the pace at which the economy can be safely reopened.
With a gradual reopening of business and activity, the FAO projects Ontario's economy will steadily strengthen into 2021, helping to reduce the budget deficit to $25.3 billion in 2021-22.
But there remains a great risk that the recovery could taken long than expected due to continued public health concerns, which could push Ontario’s net debt-to-GDP ratio above 52 per cent next year.
According to the report, real GDP is projected to decline by a record 9.0 per cent in 2020, with Ontario revenues dropping by 14 per cent over this fiscal year; much larger than what transpired 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.