Financial Markets

The trend-setting U.S. Federal Funds rate was lowered once in 2003 reflecting soft economic growth. Faced with seemingly strong domestic demand and inflationary pressures, the Bank of Canada raised its overnight rate twice by 25 basis points, once in March and again in April. In mid-2003, the Bank of Canada reversed course, decreasing interest rates by 25 basis points on two occasions. This reversal was attributed by the Bank of Canada to a strengthening Canadian dollar, a decline in inflation as well as weakness in the economy caused by the impact of SARS, Bovine Spongiform Encephalopathy (BSE) on exports of Canadian beef and cattle and the forest fires in Western Canada.

U.S. bond yields rose in 2003, which was the first time since 1999 that the yield on the 10-year note rose for the year. In Canada, 10-year government yields rose early in the year then declined, with yields closing the year out lower than at the start of the year. As a result, the spread between Canadian and U.S. bond yields narrowed throughout the year as the U.S. economy had to deal with “twin deficits” – trade and budget – compared to Canada where there were no such deficits.

Internal Developments

There were a number of internal items that affected the OFA in 2003-04. First, in July 2003, the Corporate Finance division merged with the Ontario Electricity Restructuring Secretariat of the Ministry of Finance to form the new Corporate and Electricity Finance division. The objective of the reorganization is to ensure a closer alignment of core business and program delivery on electricity finance issues, particularly as they relate to OEFC.

The OFA worked closely with the Human Resources Branch of the Ministry of Finance to hire for positions approved early in 2003. These positions were required for critical activities related to pooled funds investment, electricity operations, the implementation of the Ontario Nuclear Funds Agreement (ONFA) and to support the Ontario Municipal Economic Infrastructure Financing Authority (OMEIFA), which became the Ontario Strategic Infrastructure Financing Authority (OSIFA). Continued staff training and education assisted in performance and in maintaining a high quality of services at the OFA.

In the 2002-03 Ontario Public Accounts, the OEFC’s financial results were consolidated with those of the Province on a line-by-line basis. The consolidation was done to be consistent with Public Sector Accounting Board (PSAB) accounting treatment. OEFC revenues, expenses and Interest on Debt (IOD) are now included in the Province’s Statement of Operations and OEFC’s debt is included in debt on the Province’s Statement of Financial Position.

Previously, OEFC’s results were recorded separately on the Statement of Operations for the Province. In addition, the Province and OEFC’s borrowing programs and debt are now reported on a consolidated basis.