UPDATE 2-Ontario sees wider budget deficit as it provides C$17 bln coronavirus aid

(Adds economist quotes and details on budget) (y)

By Fergal Smith

TORONTO, March 25 (Reuters) – The Canadian province of Ontario, the world’s biggest sub-sovereign debtor, forecast on Wednesday a jump in its 2020-21 budget deficit as it provides a C$17 billion ($12 billion) financial package in response to the coronavirus outbreak.

Canada’s most populous province and economic engine forecast a deficit of C$20.5 billion in the fiscal year beginning on April 1, including a C$2.5 billion reserve, an economic update from the Progressive Conservative government showed. That compares with an estimated deficit of C$9.2 billion for 2019-20.

Ontario scrapped its initial plans to release its budget on Wednesday because of the virus outbreak and instead provided an economic update.

The C$17 billion package includes C$7 billion to support the health care system, people and jobs, as well as C$10 billion through deferring taxes and other payments, the update said.

“We will do whatever it takes to protect people’s health and protect Ontario’s economy,” Ontario Finance Minister Rod Phillips said.

This week Ontario announced the shutdown of all non-essential businesses for at least two weeks, in an effort to contain the virus spread.

Canada’s federal legislators on Wednesday approved a C$52 billion aid package, nearly double the value outlined last week, as well as C$55 billion in the form of tax deferrals.

Ontario, home to manufacturers and Canada’s major financial center, sees no economic growth in 2020 after an estimated 1.6% expansion in 2019, while unemployment is projected to rise to 6.6% from 5.6%.

“I’d say that 2020 growth will probably be even weaker than they’ve assumed, but can’t fault them since the economic backdrop is changing so quickly,” said Robert Kavcic, a senior economist at BMO Capital Markets.

He calculates that the province has “a pretty big cushion” built into the numbers of about C$5 billion.

With economic activity constrained, revenue is forecast to dip slightly to C$156.3 billion in the coming fiscal year, while program expenses are seen rising to C$161.1 billion from C$153.1 billion in 2019-20.

Net debt is seen rising to C$379.2 billion in 2020-21 from an estimated C$355.2 billion in the current fiscal year, which would raise net-debt-to-GDP to 41.7%.

Long-term public borrowing is seen rising to C$43.6 billion after the province pre-borrowed C$4.1 billion. It was estimated at C$36 billion in the current fiscal year.

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