As the sovereign debt crisis fuels a flight to quality, Canada is increasingly looking like a favourable landing spot for foreign capital, experts say.
"We're not problem-free, but on a relative basis we look great," said Mark Chandler, fixed-income strategist at RBC Dominion Securities Inc.
Interest in Canadian debt - and the currency needed to buy it - has been growing for much of the last year. Greece's struggles to manage its debt could speed up that trend as investors have become even more focused on debt and deficits, he said.
Germany and France have been trying for several days to hammer out a plan that would shrink Greece's deficit, estimated to be nearly 13 per cent of gross domestic product. Today, European leaders promised to "take determined and co-ordinated action, if needed, to safeguard financial stability in the euro area as a whole."
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But even as they tried to calm fears that the Greek debt crisis could spread to other countries and damage the euro they did not offer a financial bailout or a detailed rescue plan.
Canada's debt has the highest rating possible of triple-A, a status it reached in 2002. It is one of only 18 countries with the rating and one of only four outside Europe (along with the U.S., Australia and Singapore).
"We certainly view Canada as having our highest rating of AAA. Our outlook is stable, which means we don't see that changing in the near term," said Nikola Swann, credit analyst with Standard & Poor's in Toronto.
The country's triple-A rating is "rock solid" at a time when that of the U.S. and the U.K. are under close scrutiny and Germany and France have to face the likelihood of a weak euro, Warren Lovely, government strategist with CIBC World Markets Inc.'s Macro Strategy Group, said in a report Thursday.
"As a sovereign debt crisis swirls, the nation's relative standing has strengthened further. Simply put, highly-rated Canada offers safe harbour in today's global debt storm."
Canada has become a popular currency trade in London, said Mr. Chandler. On the short-end, Canada looks good because the Bank of Canada is seen raising interest rates in the second half of the year, while the Bank of England remains well below is inflation target and hasn't ruled out having to purchase more British debt directly in order to bring down borrowing.
Ottawa is expected to have erased almost all of the federal deficit by 2015, whereas the U.S. will likely still be running a deficit in the neighbourhood of 4 per cent of GDP.
Canada, Mr. Lovely says, is one of the few countries in the world to have lowered general government debt as a percentage of GDP over the last decade.
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As Canada has become a more appealing place for foreign investors, it has also managed to reduce its dependency on foreign investors to about 15 per cent, about half the amount it was in the early 1990s.
Canada's net debt today stands at 35 per cent of GDP and eats up 14 cents of every tax dollar to service it. In comparison, in March 1995, when Canada's rating was just AA+ and put on negative outlook, net debt was 70 per cent of GDP and interest payments ate up more than one-third of every tax dollar.