S&P Global Ratings is standing by its AAA rating on Canada despite last week's federal budget that included $101 billion in new spending measures over the next three years.

In a report late Monday afternoon, S&P said it was affirming its top-notch rating with a stable outlook because "Canada's public finances were well positioned entering the pandemic, enabling a strong policy response to contain its negative effects without weakening sovereign creditworthiness."

The federal government is running historic budget deficits to mitigate the impact of COVID-19 on Canada's economy. The shortfall for last fiscal year is estimated to be $354.2 billion. While the deficit is expected to be more than halved at $154.7 billion in the 2021-22 fiscal year, the government has yet to chart a road back to balance and is facing a debt-to-GDP ratio that is expected to hit 51.2 per cent this year, according to the finance department.

In last week's budget, Deputy Prime Minister and Finance Minister Chrystia Freeland defended her government's spending strategy in part by pointing to low interest rates.

"Not only can we afford these investments, it would be short-sighted of us not to make them," she said.

That approach has been criticized in some circles. Indeed, former Quebec Premier Jean Charest - who earlier in his career served in the Conservative cabinet of Prime Minister Brian Mulroney - recently blasted the federal government for allowing such a severe deterioration in Canada's fiscal health.

"We would be wise to set a fiscal anchor sooner rather than later – the government isn’t inclined to do that. We need a clearly defined path on how we return to balanced budgets. Otherwise, we’re going to only increase the amount of risk to our economy and to our labour market," he told BNN Bloomberg. 

But S&P appears to be far more sanguine. 

"Although fiscal and debt metrics are weaker, we believe that the government's use of its policy flexibility moderated the economic and labour market effects of the pandemic. This deviation from the government's fiscal profile does not offset Canada's structural credit strengths, in our view."

In its report, S&P said it expects Canada's gross domestic product to expand by 5.5 per cent this year, before slowing to gains of 2.4 per cent next year and 2.8 per cent in 2023. By contrast, the Bank of Canada is forecasting growth of 6.5, 3.7 and 3.2 per cent, respectively, in the next three years.

Despite its steady view on Canada, S&P warned on Monday that it could potentially downgrade the country's credit rating in the next couple of years if the government's weakened fiscal health becomes "significantly more severe and prolonged than we anticipate".