Fitch Ratings, the only agency to downgrade Canada's debt during the pandemic, is raising significant concerns about the country's fiscal direction following the release of the federal budget. While maintaining Canada's AA+ stable rating, the agency warns that persistent deficits and a growing debt burden could create a "slippery slope" for the nation's finances.
The Fiscal Warning Signs
Economist Charles St-Arnaud, Chief Economist at Alberta Central credit union, highlighted the agency's apprehension. "There's a lot of concern, especially the fact that the deficit stays relatively big, the trajectory for federal debt remains relatively high," St-Arnaud stated. "I think Fitch is probably more worried that it could be a slippery slope."
Following the budget's release on November 4, 2025, Fitch maintained its AA+/stable rating for Canada. This rating remains lower than the AAA rankings upheld by Moody's Ratings and S&P Global Ratings, reflecting Fitch's decision to downgrade Canada during the 2020 pandemic.
Deficit Projections and Debt Concerns
In an official statement, Fitch expressed that "persistent fiscal expansion and a rising debt burden have weakened its credit profile and could increase rating pressure over the medium term." The agency specifically pointed to Canada's expected federal deficit of $78.3 billion for the 2025-26 fiscal year, representing 2.5% of GDP.
This figure substantially overshoots Fitch's previous outlook of a $70.4 billion deficit (2.1% of GDP). The wider deficit raises Canada's general government deficit—including all levels of government—to 3.3% of GDP, significantly higher than the AA median of 2.3% and far exceeding Canada's pre-pandemic average of 0.4% over the two decades before 2019.
Fitch director Joshua Grundleger noted that while "Canada can withstand an economic or fiscal shock at this rating level," there's "definitely weakness on the fiscal side" creating downward pressure.
Debt Trajectory and Structural Challenges
The agency's debt projections present even starker concerns. Fitch estimates Canada's general government debt-to-GDP ratio will climb to 91.8% in 2026 and 98.5% in 2027, compared to 88.6% in 2024. This nearly doubles the AA rating median of 49.6% and indicates a troubling upward trend.
Fitch also expressed skepticism about the government's ability to control spending, citing Canada's "track record of upward deficit revisions, with subsequent budget updates consistently worse than prior projections." The latest budget shows the debt-to-GDP ratio rising to 42.4% in 2026 and 43.1% in 2027, rather than declining to 41% as projected in the 2024 Fall Economic Statement.
The agency identified additional economic challenges that could exacerbate fiscal pressures, including "persistent economic underperformance caused by tariff risks and structural challenges, including low productivity." These factors combined create a complex financial landscape that Fitch will continue monitoring closely in the coming months.
