UPDATE 2-Canada's Ontario province forecasts smaller deficit as tax revenues climb

(Recasts lead; adds quote from finance minister, details of debt payment)

OTTAWA, Nov 4 (Reuters) - Ontario, Canada’s most populous province, on Thursday projected a smaller budget deficit as stronger-than-expected economic growth helped boost tax revenues and the COVID-19 pandemic fades.

In a fiscal update, the province forecast a budget deficit of C$21.5 billion ($17.3 billion) for the 2021-2022 fiscal year, compared with the C$32.4 billion deficit forecast in August. The fiscal year began on April 1.

Healthy U.S. and global growth, a resilient domestic economy and significant progress on COVID-19 vaccinations have resulted in faster projected economic growth in Ontario, the province said.

About 83% of Ontario’s eligible population has been fully vaccinated against COVID-19. The province plans to spend around C$1 billion over the next three years to recruit more nurses and expand home care.

“We have a plan to start to come out of the pandemic. ... We’re very clearly signaling that economic recovery is at hand,” Ontario Finance Minister Peter Bethlenfalvy told reporters.

The province, however, cut its growth forecast for 2021 to 4.3% from the 5% projected in August, citing more cautious projections from private-sector economists.

In September, the province said the budget deficit for 2020-21 was C$16.4 billion, much less than the C$38.5 billion deficit it had forecast in a budget.

Stronger tax revenue and increased transfers from the federal government contributed to the improvement.

Ontario is one of the world’s largest sub-sovereign borrowers and is the largest issuer of Canadian dollar green bonds. It has completed C$28.8 billion, or 69%, of its C$42.0 billion 2021–2022 long-term borrowing program, the update said.

The yield on Ontario’s 10-year bond fell 14.7 basis points to 2.166%, trading at a spread of 52 basis points above the yield on Canadian government debt, about 6 basis points narrower on the day. ($1 = 1.2438 Canadian dollars) (Reporting by David Ljunggren in Ottawa and Fergal Smith in Toronto; Editing by Dan Grebler and Jonathan Oatis)