DBRS Confirms Province of Manitoba at A (high) and R-1 (middle)

DBRS has today confirmed the long- and short-term debt ratings of the Province of Manitoba (Manitoba or the Province) at A (high) and R-1 (middle), respectively. The trend on both ratings remains Stable. A relatively resilient and diversified economy has resulted in only a modest deterioration in fiscal performance. While Manitoba’s debt burden continues to grow, unwinding some of the positive momentum of recent years, the Province maintains considerable flexibility within its ratings and is well positioned to withstand a potentially prolonged period of slow economic growth.

In 2009-10, the Province recorded a deficit of $201 million, weaker than the small surplus originally budgeted. This translates into a DBRS-adjusted deficit of $685 million, or 1.4% of GDP – still a favourable result in relation to provincial peers. For the current fiscal year, the budget points to a deficit of $545 million, or $1.2 billion on a DBRS-adjusted basis. Despite improving economic conditions, total revenues are only budgeted to grow by a modest 0.6% in the current fiscal year, slower than the 4.4% increase in spending. Health care will account for the bulk of new spending as the Province aims to tightly manage growth in program costs and pursue labour agreements with no increases, which DBRS views as an ambitious target. The Province anticipates a return to balance by 2014-15, which equates to DBRS-adjusted deficits ranging from 2.0% to less than 1.0% of GDP.

DBRS-adjusted debt grew by $1.4 billion in 2009-10, which pushed the debt-to-GDP ratio up to 31.6% from 28.9% a year earlier. Debt is expected to grow by a further $1.4 billion in 2010-11, or 9.0%, taking the debt-to-GDP ratio to slightly above 33.0% and eroding some of the progress of recent years. An improving fiscal picture and gradual decline in capital needs is expected to result in debt-to-GDP peaking at around 34% in 2012-13. This represents a somewhat higher peak than what was assumed at the time of last year’s review but is nonetheless very manageable within the rating.

After experiencing only a minor contraction in 2009, the Province is anticipating a modest recovery with real growth of 2.5% in 2010. Lower non-residential investment in Manitoba and reduced agricultural output due to a wet summer are likely to dampen growth prospects. However, improving demand for non-renewable resources and sound domestic demand, supported by a growing population, should provide an offset. For 2011, the Province has assumed growth of 3.0%, consistent with the current private sector average, which DBRS believes carries some downside risks related to the uncertain pace of global economic recovery, and the impact of a strong Canadian dollar on exports. Overall, soft fiscal results and recent debt accumulation have lessened some of the positive momentum of recent years, but DBRS believes that Manitoba’s above-average economic and fiscal performance through the recent downturn leaves it well positioned to withstand a potentially uneven economic recovery.

Note:
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.