Quebec’s credit rating was downgraded in April 2025, which may raise concerns. Rating agency Standard & Poor’s (S&P) lowered the province’s financial evaluation, the equivalent of a “credit score” for a government, citing weakened public finances. But why did this downgrade happen, and what does it mean? Here’s the explanation.
Record deficits behind the downgrade
S&P justified its decision by pointing to Quebec’s “persistent operating deficits,” highlighted by a record $13.6 billion deficit announced in March 2025, marking a fourth consecutive budget in the red.
According to the rating agency, several structural factors contribute to this imbalance: slowing population growth (fewer new taxpayers), rapidly rising public expenditures (especially salaries), and declining certain government revenues. This combination weakens Quebec’s finances and led S&P to consider the province a riskier borrower.
Budget choices under the legault government
The downgrade is also explained by the budgetary decisions of the Legault government. In the face of inflation and public service needs, the Coalition Avenir Québec (CAQ) prioritized high spending while avoiding additional tax burdens on citizens.
For example, a recent agreement granted a 17.4% wage increase over five years to public employees, with the government considering anything less than inflation unacceptable. At the same time, it refused to raise taxes, preferring to “leave money in Quebecers’ wallets.” These policies, however, worsened the public deficit.
François Legault stands by these decisions and says he has no regrets despite the S&P sanction. He acknowledges that the government will need to “clean up” the public sector to eliminate unnecessary spending, especially since the civil service has grown by roughly 17% since 2018.
Impacts on debt and investor confidence
The credit rating downgrade has direct consequences for the government. A lower rating means higher perceived risk in the eyes of investors, which translates into higher interest rates on Quebec’s future borrowings. Financing the deficit and existing debt will therefore become more expensive. In 2025, debt servicing was already expected to reach $9.7 billion, about 20% of personal income tax revenues. That’s fewer resources available for public services and less fiscal flexibility. If Quebec faces even higher interest rates in the future, this burden will grow further.
Additionally, a downgrade can erode investor confidence: some creditors might hesitate to purchase Quebec bonds or demand higher yields to compensate for the risk. Finance Minister Éric Girard has sought to reassure the public, estimating that the downgrade will add only “a few tens of millions” per year in additional interest costs (roughly $10 million for a 0.02-point increase in rates).
In short, this situation underscores the importance of disciplined public finance management. To maintain lenders’ confidence and limit borrowing costs, the Quebec government will need to work toward reducing its deficit in the coming years, a key condition for the province’s economic stability.