Province of Ontario Presentation

November 2019

Ontario Financing Authority

http://www.ofina.on.ca

Ontario Financing Authority

www.ofina.on.ca

Ontario Overview

1

• Located in prime area with close

ties to many major U.S. states

and cities

• Ontario has a diverse economy

with direct taxation powers and

stable growth

• Services account for 77 per cent

of the economy, and

manufacturing for 12 per cent

• Current population of 14.6 million

and nominal GDP forecast at

$884 billion, representing almost

40 per cent of Canada

Ontario’s Economic and Fiscal Overview

• Economic and Fiscal Summary

▪ Largest Canadian provincial economy. Ontario’s real GDP increased 2.3

per cent in 2018, following a 2.8 per cent rise in 2017

▪ Ontario is expected to experience continued growth

▪ Business investment is projected to increase by an annual average rate of

2.6 per cent over the 2020–22 period

▪ The government is projecting a $1.3 billion improvement to the 2019–20

deficit, to $9.0 billion from $10.3 billion. This reflects the benefits of a

strong economy and revenue outlook

• Housing Market

▪ Ontario’s housing market is emerging from a period of adjustments

▪ Over the 2020–22 period, residential construction and house prices are

expected to grow moderately, while resales growth will be strong in 2020

and then moderate

2

3

Continued Economic Growth

Sources: Ontario Ministry of Finance Survey of Forecasters (October 2019), Ontario Ministry of Finance, IMF World Economic Outlook (April 2019),

IMF World Economic Update (July 2019) and “Blue Chip Economic Indicators” (October 2019).

Summary of Ontario’s Economic Outlook

(Per Cent)2019 2020 2021 2022

Real GDP Growth

Private-Sector Survey Average 1.5 1.7 1.7 2.0

Ontario’s Planning Assumption 1.4 1.5 1.5 1.9

Prudence 0.1 0.2 0.2 0.1

Nominal GDP Growth 3.4 3.3 3.3 3.6

Employment Growth 2.6 1.2 1.0 1.1

CPI Inflation 2.0 2.0 1.9 1.9

External Factors

World Real GDP Growth 3.2 3.5 3.6 3.6

U.S. Real GDP Growth 2.3 1.7 1.8 1.9

Favourable Demographics

Sources: Eurostat, U.S. Census Bureau, Statistics Canada and Ontario Ministry of Finance.

Population Growth Rates Comparison

4

Growth Rate

(Per Cent)

-0.50

-0.25

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

1971–72 1978–79 1985–86 1992–93 1999–00 2006–07 2013–14 2020–21 2027–28 2034–35

Historical Projected

Ontario

Germany

United

Kingdom

Rest of Canada

United States

Detailed Fiscal Outlook

5

Fiscal Summary

($ Billions)

Actual Current Outlook

2018–19 2019–20 2020–21 2021–22

Revenue 153.7 155.8 161.5 165.4

Expense

Programs 148.8 150.9 154.0 155.9

Interest on Debt 12.4 12.9 13.2 13.9

Total Expense 161.1 163.8 167.2 169.8

Reserve – 1.0 1.0 1.0

Surplus/(Deficit) (7.4) (9.0) (6.7) (5.4)

Source: 2019 Ontario Economic Outlook and Fiscal Review.

Note: Numbers may not add due to rounding.

• The government is projecting a deficit of $9.0 billion in 2019–20

• Over the medium term, the government continues to project steadily declining deficits of $6.7 billion in

2020–21 and $5.4 billion in 2021–22. The government is maintaining its commitment to balance the

budget by 2023–24

Ontario Bonds• Bond Offerings

▪ Wide range of offerings provide extensive investment and trading

opportunities across the yield curve

• Liquid

▪ Strong liquidity in secondary markets and large benchmark issues

• Attractive Spreads

▪ Ontario spreads give investors opportunities to enhance their returns

• Safe

▪ A diverse economy with direct taxation powers and stable growth

• Borrowing Program

▪ Diverse program investor base continues to develop in size and diversification

6

7

Ontario’s Borrowing Outlook

Note: Numbers may not add due to rounding.

Source: Ontario Financing Authority.

($ Billions)

2019

Budget

In-Year

Change

Current Outlook

2019–20 2020–21 2021–22

Deficit/(Surplus) 10.3 (1.3) 9.0 6.7 5.4

Investment in Capital Assets 11.6 – 11.6 11.0 10.4

Non-Cash Adjustments (7.7) – (7.7) (7.7) (7.7)

Loans to Infrastructure Ontario 0.2 – 0.2 0.1 0.2

Other Net Loans/Investments 0.7 0.0 0.7 0.5 (0.1)

Debt Maturities/ Redemptions 27.5 (0.1) 27.4 26.6 24.0

Total Funding Requirement 42.5 (1.3) 41.2 37.2 32.2

Decrease/(Increase) in Short-Term Borrowing (1.2) – (1.2) (1.0) (1.0)

Increase/(Decrease) in Cash and Cash Equivalents (5.3) (2.8) (8.1) (4.5) –

Total Long-Term Public Borrowing 36.0 (4.1) 31.9 31.7 31.2

Canadian Dollar Syndicated

Bonds$14.7B

69%

U.S. Dollar Bonds$6.3B30%

Australian Dollar Bonds$0.3B

1%

2019–20 Borrowing Program

8

Note: As of November 6, 2019. Numbers may not add due to rounding.

Canadian

Dollar

$14.7B

69%

Foreign

Currencies

$6.7B

31%

$21.3Billion Issued

15.419.0

21.423.5

28.426.4

29.431.4

25.8

19.9 21.1

30.6

14.7

2.6

9.7

22.416.4 6.5 10.2

6.6

8.4

6.2

7.1

12.8

9.0

6.7

10.5

18.0

28.7

43.8

39.9

34.936.6 36.0

39.8

32.1

27.0

33.9

39.6

31.9 31.7 31.2

0

5

10

15

20

25

30

35

40

45

2007–08 2008–09 2009–10 2010–11 2011–12 2012–13 2013–14 2014–15 2015–16 2016–17 2017–18 2018–19 2019–20 2020–21 2021–22

Canadian Dollar Foreign Currencies 2019–20 Borrowing Remaining Projected Outlook

Domestic and International Borrowing

9

Note: Numbers may not add due to rounding.

Source: Ontario Financing Authority.

Total Long-Term Borrowing

($ Billions)

Foreign 14% 34% 51% 41% 19% 28% 18% 21% 19% 26% 38% 23% 31% – –

Domestic 86% 66% 49% 59% 81% 72% 82% 79% 81% 74% 62% 77% 69% – –

Weighted-

Average

Term12.1 8.6 8.1 12.8 13.0 12.4 13.6 14.1 14.2 13.9 12.1 12.9 16.3 – –

As of November 6, 2019

Weighted-Average Term of Borrowings

10

12.1

8.68.1

12.8 13.012.4

13.614.1 14.2 13.9

12.112.9

16.3

10.7 10.49.7 10.0 10.1 10.1 10.4 10.7 10.9 10.9 10.7 10.7

11.2*

0

2

4

6

8

10

12

14

16

2007–08 2008–09 2009–10 2010–11 2011–12 2012–13 2013–14 2014–15 2015–16 2016–17 2017–18 2018–19 2019–20

Weighted Borrowing Average Term Debt Portfolio Average Term

*The debt portfolio average terms are on a forecast basis for 2019–20 as of October 24, 2019.

Source: Ontario Financing Authority.

• Going back to the beginning of fiscal 2010–11, Ontario has issued $87.9 billion of

bonds 30 years or longer to lock in low interest rates

Average Term

(Years)

Domestic Borrowing Program

11

Canadian dollar Benchmark Bonds

(As of November 6, 2019)

Term Ontario Canada

5 yr (old) 2.60% September 8, 2023 $4.75B 2.25% March 1, 2024 $12.00B

5 yr (new) 2.30% September 8, 2024 $2.75B 1.50% September 1, 2024 $16.20B

10 yr (old) 2.90% June 2, 2028 $9.55B 2.00% June 1, 2028 $13.50B

10 yr (new) 2.70% June 2, 2029 $7.65B 2.25% June 1, 2029 $12.30B

Long (old) 2.90% June 2, 2049 $13.25B 3.50% December 1, 2045 $16.40B

Long (new) 2.65% December 2, 2050 $6.30B 2.75% December 1, 2048 $14.90B

1 PC Bond, as of March 31, 2019. 2 Investment Industry Regulatory Organization of Canada (IIROC) Market Trade Reporting System - Provincial Bond Total Trading.

• Narrow Bid-Ask Spreads

• Large and diverse domestic underwriting syndicate of 12 dealers make active markets in Ontario bonds

• Ontario accounts for 14.6 per cent of the FTSE TMX Universe Bond Index, 18.6 per cent of the FTSE TMX

Mid Bond Index and 19.7 per cent of the FTSE TMX Long Bond Index1

• Ontario bonds accounted for 61.0 per cent of Canadian provincial bond trading in 20182

• Regular issuance of 5-year, 10-year and 30-year issues, which are re-opened to achieve benchmark size

• Large Order Procedure (carve-outs) to accommodate large investors (4 issues totalling $1.8 billion in

2019–20)

Sources: Bloomberg, Ontario Financing Authority.

U.S. Dollar Borrowing

12

Term Issue Date Amount (U.S.$) Coupon

10 year September 25, 2019 1.25 billion 2.00%

7 years June 13, 2019 1.75 billion 2.30%

3 years April 17, 2019 1.75 billion 2.55%

5 years January 29, 2019 2.50 billion 3.05%

5 years October 10, 2018 2.50 billion 3.40%

3 years February 6, 2018 3.00 billion 2.55%

5 years September 26, 2017 2.00 billion 2.20%

5 years May 11, 2017 2.00 billion 2.25%

Recently Issued U.S. Dollar Bonds

• Fixed Global Bonds in 3, 5, 7 and 10 years, with benchmark size of U.S.$1B plus

• Total U.S. denominated bonds of C$40.0B outstanding as of March 31, 2019

• U.S. commercial paper (1-270 days), with about C$3.9B outstanding as of March 31, 2019

• Global Bonds are offered in SEC-registered format

• Eligible Ontario bonds are included in a number of bond market indices and sub-indices including

BofA Merrill Lynch, Citi, and Barclays Capital

Canada16%

United States42%

Europe17%

Asia Pacific15%

Middle East / Africa

2%

Other8%

• Core market with annual issuance since 1991

• Right-sized bond issues to meet demand

• U.S. dollar investors diversified both geographically and by type

USD by Geography USD by Investor Type

Note: Data for USD by Geography and Investor Type since 2010.

Source: Ontario Financing Authority.

Asset Managers

24%

Central Banks14%

Banks / Trust

Companies31%

Insurance Companies /

Pension Funds10%

Government Agencies /

Supranationals8%

Mutual Funds / Fund Managers

6%

Other6%

U.S. Dollar Market

13

Ontario’s Green Bonds• Ontario is currently the largest issuer of Canadian dollar Green Bonds, with five green issues

totaling $4.0 billion and with $3.5 billion currently outstanding. October marked the fifth

anniversary of Ontario’s Green Bond program

• The Province plans to launch its next Green Bond before the end of the fiscal year, and possibly

another if market conditions allow

• They serve as an important tool to help Ontario finance public transit initiatives, extreme

weather-resistant infrastructure, and energy efficiency and conservation projects

• Assurances and Features:

▪ Ontario’s Green Bond Framework has been developed in consultation with the Center for

International Climate and Environmental Research — Oslo (CICERO)

▪ An assurance audit is performed by the Auditor General of Ontario verifying amounts

allocated to selected projects and tracking the amount of Green Bond proceeds

▪ Ontario’s Green Bond program aligns with the Green Bond Principles maintained by the

International Capital Market Association

• Ontario’s issues under the Green Bond program carry the full faith and credit of the Province of

Ontario with no project risk

14

($ Billions)

Note: As of October 31, 2019

Average Unrestricted Liquid Reserve Levels

Liquidity and Short-Term Borrowing Capacity

*Regular issuance of 3M, 6M and 1Y T-Bills

Note: As of October 31, 2019. Numbers may not add due to rounding.

8.3

14.4

19.4 20.2

23.324.9

23.621.7 21.1

30.1

32.634.3

0

5

10

15

20

25

30

35

40

($ Billions)

C$ T-Bill

Program

U.S.$

Commercial

Paper

Program

Total

Currency Canadian

Dollars

U.S. Dollars –

Maturity 1 day-3

years*

1-270 day(s) –

Authorized C$39.0 C$15.0 C$54.0

Outstanding C$18.0 C$5.0 C$23.0

Available C$21.0 C$10.0 C$31.0

• Liquid reserves (cash and short-term investments) are maintained at levels sufficient to

ensure the Province is able to meet its short-term financial obligations

• Ontario treasury bills and U.S. commercial paper are very well received in the money markets

and provide additional borrowing capacity if required

• Large capacity for short term borrowing: $54.0 billion authorized and $31.0 billion available

15

Source: Ontario Financing Authority.

Net Debt-to-GDP

16

Per Cent

• In 2019–20, the net debt-to-GDP ratio is projected to be 40.0 per cent, or 0.7 percentage points lower than the 40.7

per cent forecast in the 2019 Budget. Going forward, the net debt-to-GDP ratio for the current outlook period is

forecast to be 0.6 percentage points lower in 2020–21 and 0.8 percentage points lower in 2021–22 than forecast in the

2019 Budget, as a result of the government’s debt reduction strategy and lower than forecast interest rates

Notes: Net debt has been restated to include broader public-sector net debt, starting in 2005–06. Net debt has been restated from 2001–02 onward for the adjustments

resulting from the revised accounting treatment of jointly sponsored pension plans.

Sources: Statistics Canada and Ontario Ministry of Finance.

13.4

17.1

21.1

26.7

28.4

30.2 31.3

30.6 29.5

32.1

29.3 28.3

26.8 27.5

26.8

27.9

27.1 26.6

27.9

32.4

34.5

36.7

38.2

39.7 40.6 40.3

39.6 39.2

39.6 40.0 40.1 39.8

40.2 40.7 40.7 40.6

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Net Debt-to-GDP 2019 Budget Forecast

Actuals Current Outlook

IOD-to-Revenue

17

Per Cent

Note: The years from 2005–06 to 2019–20 have been restated for broader public sector line-by-line presentation.

Sources: Public Accounts of Ontario (1990–1991 to 2018–2019), and Ontario Financing Authority.

Actuals Current Outlook

7.7

8.8

10.8

13.9

14.5 14.6 14.8

14.2 14.3

15.5

15.0

14.2

12.9 12.9

11.1

9.7

8.9

8.4 8.7

8.9 8.8 9.1 9.0 9.1 8.9

8.5 8.3

7.98.1

8.3 8.2 8.4

5.0

7.0

9.0

11.0

13.0

15.0

17.0

Effective Interest Rate (Weighted Average) on Total Debt

18

* As of September 30, 2019.

Sources: Public Accounts of Ontario (1990–1991 to 2018–2019), and Ontario Financing Authority.

10.910.7

10.19.5 9.8

9.49.0 9.0

8.68.4

8.2

7.67.2

6.76.4

6.16.0 5.8

5.2

4.6 4.5 4.44.1 3.9

3.7 3.6 3.5 3.6 3.6 3.6

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Per Cent

Average Annual Ontario Borrowing Rates

19

3.383.27

3.42

3.07

2.50

2.93

2.67

2.25

2.09

2.31

2.87

3.44

3.73

2.38

2.70

2.27

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Actuals and 2019 Budget Forecast

2019 Economic Outlook and Fiscal Review Outlook

Actual Year-to-Date Cost of Borrowing

Per Cent

Note: 2019–20 and 2020–21 are 2019 Budget forecasts. Actual Year-to-Date Cost of Borrowing is as of October 24, 2019.

Sources: Public Accounts of Ontario (1990–1991 to 2018–2019) and Ontario Financing Authority.

Note: Excludes Ontario Electricity Financial Corporation debt.

* Includes debt maturities within a one year time horizon.

Exposure Policy Limit

Foreign Exchange 0.2% 3.0%

Floating Rate* 11.5% 35.0%

Risk Management

20

Of outstanding debt, interim as of October 31, 2019.

• Monitor and manage debt maturity profile to limit refinancing risk

• Maintain a high level of liquid reserves and short term borrowing capacity

• Enforce strict credit limits for financial and investment counterparties

• Have collateralized swap agreements in place for most swap counterparties

Credit Ratings

21

Rating Agencies Long-term Rating

A+

Aa3

AA-

AA (low)

Short-term Rating

A-1

P-1

F1+

R-1 (mid)

stable

Outlook

stable

stable

stable

Appendix

Composition of Revenue 2019–20

23

Revenue $155.8 Billion

Personal Income Tax

$37.1B23.8%

Government of Canada Transfers

$25.5B16.3%

Income from Govt.

Business Enterprises

$5.8B3.7%

Other Non-Tax Revenue$16.7B10.7%

Corporations Tax

$16.1B10.3%

Sales Tax$28.1B18.0%

Other Taxes$26.5B17.0%

• Revenue sources are diversified

• Taxation revenues account for 69.2 per cent

of total revenues

• Government of Canada transfers including

the Canada Health Transfer and Canada

Social Transfer account for 16.3 per cent of

total revenues

• Net Income from Government Business

Enterprises (Liquor Control Board of

Ontario, Ontario Lottery and Gaming

Corporation, Hydro One Ltd, and Ontario

Power Generation Inc.) account for

3.7 per cent of total revenues

• Other Non-Tax Revenues such as Fees,

Donations and Other Revenues from the

broader public sector, Vehicle and Driver

Registration fees, and Sales and Rentals,

account for 10.7 per cent of total revenues

Source: 2019 Ontario Economic Outlook and Fiscal Review

Composition of Total Expense 2019–20

24

Expense $163.8 Billion

Health Sector2

$63.8B39.0%

Education Sector1

$30.0B18.3%

Postsecondary Education and

Training Sector2

$11.4B6.9%

Children's and Social Services

Sector$17.2B10.5%

Justice Sector$4.2B2.6%

Other Programs2

$24.2B14.8%

Interest on Debt$12.9B7.9%

1 Excludes Teachers’ Pension Plan. Teachers’ Pension Plan expense is included in Other Programs2 Sectors are reported based on the 2019 Budget ministry structure. Impacts on sectors resulting from changes to ministry structures made since the

2019 Budget will be reflected in future updates.

Source: 2019 Ontario Economic Outlook and Fiscal Review

• The largest expense is the Health Sector

at $63.8 billion, accounting for 39.0 per

cent of total expense

• Interest on Debt, included as part of total

expense, is $12.9 billion, or 7.9 per cent

of total expense

Primary2% Utilities

2% Construction7%

Manufacturing12%

Wholesale & Retail Trade

11%

Transportation & Warehousing

4%

Information & Cultural

3%

Finance & Insurance

10%

Real Estate & Renting & Leasing1

13%

Professional & Scientific

7%

Health & Education

13%

Public Administration

7%

Other Services9%

1

• Ontario has a diverse economy, with extensive financial and business services, manufacturing and a smaller

primary sector compared to the rest of Canada

Structure of the Ontario Economy, 2018 (Per Cent Share of Ontario Nominal GDP)

Ontario’s Diverse Economy

25

1 Includes estimate of imputed rental income from owner occupied dwellings.

Source: Statistics Canada.

Note: Numbers may not add due to rounding.

Services (77% of GDP)

Goods (23% of GDP)

p = Ontario Ministry of Finance planning projection

Sources: Canadian Real Estate Association and Ontario Ministry of Finance.

26

Ontario Housing Market

Average Home Resale Price Growth

(Per Cent Change)

Home Resales Growth

(Per Cent Change)

8.7

-9.8

-12.9

10.1

8.0

3.8

1.2

-20

-15

-10

-5

0

5

10

15

2016 2017 2018 2019p 2020p 2021p 2022p

15.2

9.3

-2.4

4.5

6.34.8

4.0

-20

-15

-10

-5

0

5

10

15

20

2016 2017 2018 2019p 2020p 2021p 2022p

27

Projected Economic Growth Breakdown

1.6

2.0

0.1

2.72.6

2.01.9

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Ontario RealGDP

HouseholdConsumption

Government ResidentialInvestment

BusinessInvestment

Exports Imports

Note: Government includes consumption and investment expenditure. Business investment includes non-residential construction, machinery and equipment and

intellectual property products.

Source: Ontario Ministry of Finance.

Average Annual Growth from 2020 to 2022

(Per Cent)

28

Marginal Effective Tax Rate

Notes: The marginal effective tax rate (METR) includes federal and provincial taxes and excludes the resource and financial sectors and tax provisions

related to research and development. The U.S. Average METR “After U.S. Tax Reform (2019)” reflects the reduced federal corporate income tax rate

and the immediate write off of eligible depreciable property.

Source: Ontario Ministry of Finance.

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Investor Relations

Ontario Financing Authority

1 Dundas Street West, Suite 1200

Toronto, Ontario M5G 1Z3

Canada

Telephone: (416) 325-8000

Legal Notice

This presentation was compiled by the Ontario Financing Authority. This information is intended for general information purposes only and does not constitute an offer to sell or a solicitation of offers to purchase securities. It has not been approved by any securities

regulatory authority and it is not sufficient for the purpose of deciding to purchase securities. It may have errors or omissions resulting from electronic conversion, downloading or unauthorized modifications. Statements in this presentation may be “forward-looking

statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve uncertainties, risks, and other factors which could cause the state of Ontario’s economy to differ materially from the forecasts and

economic outlook contained expressly or implicitly in such statements. The province of Ontario undertakes no obligation to update forward-looking statements to reflect new information, future events or otherwise, except as may be required under applicable laws

and regulations. While the information in this presentation, when posted or released, was believed to be reliable as of its date, NO WARRANTY IS MADE AS TO THE ACCURACY OR COMPLETENESS OF THIS DOCUMENT OR THE INFORMATION IT

CONTAINS.