DBRS Canadian Provinces Study: Time for the Hard Work to Begin

Provincial governments had a difficult year in 2009-10, with most provinces suffering from deteriorating fiscal situations and financial metrics, according to a DBRS study on the federal and provincial governments published today. The projected growth for most Canadian provinces for 2010 should lead to improved fiscal results. However, more than just a return to growth will be required to close the fiscal gaps opened up by the recession.

“Despite good intentions,” says Travis Shaw, Assistant Vice President, “the impact of recessions on fiscal performance can be long-lasting.” The last major recession experienced in Canada came to an end in the second quarter of 1991; however, deficits persisted in a number of provinces until 1998-99.

The total combined debt burden of the federal and provincial governments reached an estimated 78% of GDP at the end of 2009-10, up markedly from the low of 61% just two years earlier. Provincial and federal deficits amounted to 6.9% of GDP on a DBRS-adjusted basis in 2009-10, a substantial increase from the 1.5% of GDP recorded in 2008-09.

“Given the headwinds in the global economy and the challenges facing Canada’s largest trading partner to the south,” explains Mr. Shaw, “it is far from certain what levels of growth will be seen in the coming years. In fact, forecasts for 2011 have been revised downward for most provinces since current budgets were formulated.”

If economic growth is slower than that assumed in a number of provincial fiscal recovery plans, those plans could fall short of their goals. The upcoming round of budgets will be very telling as to which provinces are ready to recognize that it is time for the hard work to begin and make some difficult choices about taxes and spending.

Note:
The applicable methodologies are Rating Sovereign Governments and Rating Canadian Provincial Governments, which can be found on our website under Methodologies.