By Fergal Smith
TORONTO, April 27 (Reuters) - Ontario eschewed the chance to pay down its heavy debt burden in its 2017 budget even as revenues for Canada's most populated province got a boost from stronger economic growth and a hot housing market.
The province projected its net debt to be C$301.9 billion ($221.6 billion) as of March 31, 2017, one of the largest sub-sovereign debts in the world. That is lower than Ontario forecast in the 2016 Budget, but up from C$294.6 billion in 2015-16. It sees further increase in its debt load in future years.
Revenues rose more than expected in 2016-17 and are forecast to increase at an average annual rate of 3.9 percent over the three years to 2019-20. But the Liberal government, which faces an election in 2018, has prioritized an increase in spending on education and healthcare, including a new universal drug coverage program for young adults and children.
"We've made some choices, definitely," said Finance Minister Charles Sousa, who addressed the media before presenting the budget.
With the budget balanced, the additional debt will go toward capital investment, which the province hopes will raise future growth.
Still, Ontario's elevated debt load could leave the province with less flexibility if growth falls short.
The province should take advantage of current strength in the economy to begin reducing its debt or risk paying higher borrowing costs if the economy worsens, said Michael Dolega, senior economist at TD Bank Group.
Dolega said he worries about an unanticipated shock, such as a global downturn or a severe housing market correction.
The province forecast that borrowing in the 2017-18 fiscal year will dip to C$26.4 billion after C$3.2 billion of prefunding lifted issuance to C$27 billion in 2016-17.
The net debt-to-GDP ratio is forecast to decline to 37.5 percent from 37.8 percent. But the province does not expect the ratio to hit its target of 27 percent until 2029-30. It stood at 27 percent before the global financial crisis triggered a recession in 2008.
"The only very gradual decline in that measure leaves the province vulnerable to adverse shocks," Dolega said. ($1 = 1.3626 Canadian dollars)