UPDATE 1-Canada's Ontario raises pandemic-related spending; sticks to record deficit forecast

(Adds details on fiscal update)

TORONTO, Feb 10 (Reuters) – Ontario, Canada’s most populous province, said on Wednesday it would increase spending on hospitals and small businesses during the coronavirus pandemic, as it maintained its forecast for a record budget deficit in the current fiscal year.

The province, which is Canada’s economic engine, forecast a budget deficit of C$38.5 billion ($30.3 billion) for the 2020-21 fiscal year, which ends in March, matching its forecast in last November’s budget, a fiscal update showed.

Funding for pandemic-related measures was raised by C$2.6 billion for the current fiscal year, including C$1.4 billion in grants for small businesses. Total spending was projected to rise about C$25 billion in 2020-21 to C$177.2 billion.

“Our priority remains protecting lives and livelihoods and defeating this virus,” Finance Minister Peter Bethlenfalvy said in a news release.

Ontario cut its growth forecast for 2021 to 4.5% from the 4.9% projected in November. For 2020, the economic decline was seen at 5.9% rather than 6.5%.

On Monday, the province said it would extend a stay-at-home order for Toronto, the largest Canadian city, and nearby suburbs by two weeks as it contends with a second wave of the pandemic.

Ontario added C$2.1 billion to a contingency fund, while drawing down its reserve for the nearly completed fiscal year by C$2 billion to C$500 million.

Net-debt-to-GDP is forecast at 47.1% in 2020-21, up 0.1 percentage points from the November forecast.

The province, which is one of the world’s largest sub-sovereign borrowers, has issued C$55.2 billion of debt to-date in the current fiscal year, completing its long-term borrowing program.

The yield on Ontario’s 10-year bond was 1.518% on Wednesday, up less than 1 basis point, in line with the move in Canada’s 10-year bond.

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