Wednesday 18 September 2019

Irish investments help protect Canada's rating

The Corrib gas field
The Corrib gas field

Esteban Duarte and Ellie Donnelly

Canada's trove of overseas assets, including assets held by pension funds in Ireland, is helping to protect its top credit rating, according to Fitch Ratings.

Foreign assets held by Canadians reached C$4.96tn (€3.29tn) at the end of 2018, exceeding foreign liabilities by C$528.6bn (€350.7bn), and making the country a net creditor to the rest of the world.

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That's helping to support the credit rating, despite a mountain of public-sector debt and persistent current account deficits that would typically undermine a nation's creditworthiness, Fitch said.

Among their investments in Ireland is a 45pc stake in the Corrib gas field, bought for €830m in 2017. Elsewhere, the Ontario Teachers' Pension Plan controls the majority of Premier Lotteries Ireland.

The Canadian current account includes trade in goods and services, as well as net earnings on cross-border investments and transfer payments.

"Countries that run current account deficits are countries that tend to pull the rating down," said James McCormack Fitch's global head of sovereign & supranational group. Nonetheless, "Canada is building more external assets than external liabilities".

Canada historically had been a debtor nation, with net liabilities peaking at C$333bn in 2011, according to Statistics Canada.

But since then, the country has seen the value of its foreign assets more than double, helped in part by a weaker Canadian dollar.

That outpaced a 72pc increase in liabilities. The nation turned from debtor to creditor in 2014.

The C$2.2tn economy is supporting public sector debt - provincial and federal - equivalent to almost 90pc of its output, compared with an average of about 40pc for the 11 countries rated AAA by Fitch. Top-rated countries have, on average, been reporting current account surpluses while Canada has posted deficits of about 2 percentage points to almost 4 percentage points of gross domestic product in the last decade.

Additional reporting by Bloomberg

Irish Independent

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