DBRS Confirms the Province of British Columbia at AA (high) and R-1 (high)

DBRS has today confirmed the Long- and Short-Term Debt ratings of the Province of British Columbia (British Columbia or the Province) at AA (high) and R-1 (high), respectively. The trend on all ratings remains Stable. The confirmation reflects a practice of prudent fiscal management and a low debt burden, which affords the Province with sufficient flexibility to safely navigate through the challenging economic conditions currently prevailing without significantly eroding its credit profile.

Despite a much weaker-than-expected fiscal outlook than the one originally presented in February, the Province is still expected to benefit from a more resilient fiscal outlook than many other provinces. The September 2009 budget now points to a DBRS-adjusted deficit of $5.7 billion, or 3.0% of GDP in 2009-10. Total revenues are expected to fall by 1.7% from 2008-09 levels as weak natural gas prices will weigh heavily on royalty receipts and only be partially offset by higher federal transfers. Led by increased outlays for health and a sizeable capital program aimed at stimulating economic activity, total spending is budgeted to rise by 7.0% in 2009-10. The Province’s medium-term plan points to deficits ranging from 1% to 2% of GDP over the next two years, with a return to balance forecasted by 2013-14 as spending restraint becomes increasingly important.

After six consecutive years of decline, falling to a low of 15.6% of GDP in 2008-09, British Columbia’s debt-to-GDP ratio is expected to rise to almost 19% in 2009-10 as a result of weak fiscal results and significant capital spending. Based on the medium-term plan, sustained capital spending and deficits will continue to drive debt and likely push the debt-to-GDP ratio above 20% in 2010-11. While this will unwind some of the progress made in recent years, British Columbia’s debt burden is expected to stabilize around 20%, the third lowest of all provinces and well manageable within the current rating.

Although less reliant on U.S. economic growth than most provinces, British Columbia has been one of the hardest hit so far by the downturn and the current private sector forecast points to a contraction in real GDP of 2.3% in 2009. For 2010, the consensus forecast calls for a notable rebound to 2.8% real growth, although DBRS believes this could prove optimistic given the strong Canadian dollar and still-uncertain pace of economic recovery. However, British Columbia’s track record of sound fiscal management provides comfort to DBRS that the Province can reasonably achieve its fiscal targets, ensuring the credit profile remains supportive of the current ratings.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Canadian Provincial Governments, which can be found on our website under Methodologies.

This is a Corporate (Public Finance) rating.