Fitch Rates Province of Quebec, Canada's NZ$300MM Global Notes 'AA-'.

CHICAGO -- Fitch Ratings has assigned an 'AA-' rating to the Province of Quebec, Canada's NZ$300,000,000 6.75% global notes, series QC, due Nov. 9, 2015. Fitch also affirms the 'AA-' long-term foreign and local currency ratings and 'F1+' short-term rating on the

The rating is based on Quebec's continuing commitment to fiscal equilibrium, a resilient and diversified economy, and market access to liquidity for both operations and debt service requirements. The ratings also recognize that while Quebec's heavy debt stocks continue to grow in spite of adherence to the Balanced Budget Act of 1996, total debt is expected to decline slightly relative to GDP through the end of the decade.

Despite reduced own-source revenues in fiscal 2005, strong cost control and increased federal transfers led to balanced results in the consolidated budget. With sustained economic growth and continued vigilance in managing expenditures in fiscal 2006, the province will maintain balanced budgetary results, despite absorbing collective bargaining expenditure increases and modest personal tax relief. Consequently, the province's net financing requirement will be C$434 million in fiscal 2006, compared with C$412 million in fiscal 2005. For 2007, the government anticipates a budgetary imbalance of C$773 million, which the government is committed to close. Health care, social services, and education remain priority issues for the government. A new initiative to reform corporate taxation this year is expected to improve private investment and employment growth.

Quebec is the largest subnational jurisdiction in Canada by land area and second in population and economic output after Ontario. Supported by strong domestic demand, the Quebec economy is expected to have real GDP growth of 2.4% in 2005, compared with 2.3% in 2004. Although housing construction demand is easing from record levels, nonresidential investment remains brisk and retail activity is high due to strong steady consumer confidence and continued employment growth. Unemployment was 8.3% in October 2005, compared with 6.6% in Canada.

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