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

DBRS has 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. The confirmation is supported by Manitoba’s resilient and diversified economy and a debt burden that, while rising, remains within an acceptable range for the current ratings.

Based on preliminary results, Manitoba recorded a deficit of $1.1 billion in 2011–12. On a DBRS-adjusted basis, after including capital expenditures as incurred rather than as amortized, this translates into a shortfall of $2.7 billion, or 4.8% of GDP. This was considerably weaker than budget and more than twice as large as the 2010–11 shortfall. Significant flood-related expenditures that were only partially shared with the federal government accounted for most of the erosion in fiscal performance. For 2012–13, the Province has budgeted for a DBRS-adjusted deficit of $2.0 billion, or 3.3% of GDP. Revenues are expected to remain relatively unchanged as increased receipts from a broader sales tax base and higher tobacco tax rate are offset by a reduction in federal transfers. To help contain spending, Manitoba is implementing departmental budget freezes, reducing the number of regional health authorities and aiming to curb labour costs through attrition. The Province has maintained its plan to return to balance by 2014–15 with DBRS-adjusted deficits of around 2.0% to 3.0% of GDP anticipated in the final two years of the plan. DBRS notes that this is among the weakest outlooks of all provinces and, while considered achievable, may entail greater spending restraint or additional tax measures if federal transfers are further reduced or if major labour agreements, up for renewal in 2013 and 2014, prove more costly.

Manitoba’s economy is estimated by the Province to have grown by 2.2% in 2011. However, DBRS cautions that Statistics Canada’s preliminary estimates reported real growth of 1.1% (at basic prices). For the second consecutive year, heavy rainfall and widespread flooding led to notable declines in wheat, canola, oats and barley output. The Province has assumed real growth of 2.3% in 2012, consistent with current private sector consensus, despite recent downward revisions to most forecasts. The outlook now appears to be weakening for 2013 with the latest private sector average of 2.2%, likely be tempered by weak global demand as a result of ongoing sovereign debt challenges in Europe and potential fiscal consolidation in the United States.

As of March 31, 2012, debt-to-GDP stood at 34.4%, up from 31.8% one year earlier, as debt outstanding grew materially by $2.3 billion, or 13.4%. The weaker-than-expected fiscal performance resulted in greater-than-planned debt issuance. DBRS estimates that debt-to-GDP will rise to 35.0% by March 31, 2013, leaving Manitoba the fourth-most indebted province in the country. Over the medium term, debt is expected to grow between 7% and 9% annually. This is likely to result in a debt-to-GDP ratio of roughly 38% in 2014–15, a higher peak than had been anticipated at the time of last year’s review, but still considered manageable within the current ratings.

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

The applicable methodology is Rating Canadian Provincial Governments (August 2012), which can be found on our website under Methodologies.