Fitch Affirms 'AA-/F1+' Ratings of Quebec.

Business Editors

NEW YORK--(BUSINESS WIRE)--July 31, 2003

Fitch Ratings has affirmed the 'AA-' long-term foreign and local currency ratings and 'F1+' short-term rating on the outstanding debt obligations of Quebec, Canada. The ratings apply to all securities issued under Quebec's various long-term and medium-term note programs as well as short-term treasury bills and notes. The Rating Outlook for all ratings is Stable.

The ratings affirmation is grounded on Quebec's continual commitment to fiscal equilibrium that survives changes in political administrations, a resilient and increasingly diversified economy, and market access to liquidity for both operations and debt service requirements. The ratings also recognize that while still affordable, Quebec's heavy debt stocks continue to grow.

In April 2003 the Quebec Liberal Party won a solid majority in the National Assembly. Premier Jean Charest has announced plans to restructure the government's bureaucracies and limit government intervention. Although Fitch expects some uncertainty in Quebec's retrenchment, the administration's political mandate combined with the expected continuation of North America's economic recovery provide a rare opportunity for innovative strategies.

In keeping with the Balanced Budget Act of 1996, reported results for fiscal 2003 indicate a zero-deficit. An unforeseen consolidated budget gap equivalent to 8% of budgetary revenues was identified for fiscal 2004 by a special audit committee. Among the actions announced to eliminate the shortfall are spending reductions, tightening of tax incentives and higher revenue targets for government enterprises such as Hydro-Quebec.

Quebec's heavy and still growing debt burden remains a concern. Total government debt rose 3.3% to C$108.602 billion at 31 March 2003. The debt stock is partly associated with deficits accumulated over decades as well as the recognition of the employee retirement liability as a financial obligation (35.4% of total government debt). However, Quebec's debt remains affordable and sustainable, as the economy continues to expand and government revenues grow. A priority for the Charest administration is to contain debt growth.

Quebec is the largest sub-national jurisdiction in Canada by land area (three times the size of France) and second in population and economic output (after Ontario). Driven by a strong construction sector and high consumer confidence, Quebec outperformed the world's advanced economies in 2002. The expectation for GDP during 2003 is growth deceleration to 2.5% from 4.3% in 2002.

A new Credit Analysis on Quebec will be available shortly on Fitch Rating's web site at 'www.fitchresearch.com'.