DBRS Upgrades Province of Nova Scotia to A (high) and R-1 (middle), Trend Stable

DBRS has today upgraded the Issuer Rating of the Province of Nova Scotia (the Province) to A (high), along with its Long-Term Debt and Short-Term Debt ratings to A (high) and R-1 (middle), respectively. The trend on all ratings has been returned to Stable. The rating action, in part, reflects the steady improvement in Nova Scotia’s credit profile even prior to the great recession of 2009 and relatively limited erosion encountered during the downturn, along with sustained fiscal discipline and prudent financial management demonstrated since then. This is highlighted by gains achieved through recent pension reform and considerable liquidity maintained as part of a careful approach to managing liabilities. Furthermore, despite facing the generally soft economic growth conditions experienced across Canada, Nova Scotia’s fiscal recovery is well ahead of that of many other provinces. The Province anticipates restoring balance this fiscal year, which will help to stabilize the debt burden at a manageable level.

Based on preliminary results, Nova Scotia recorded a deficit of $356 million in 2012-13, a notable deterioration from budget. On a DBRS-adjusted basis, after recognizing capital expenditures as incurred rather than as amortized, this equates to a shortfall of $640 million, or 1.7% of GDP. In relation to budget, revenues were somewhat weaker than initially expected, while capital outlays contributed to higher-than-planned spending. As a result, DBRS-adjusted debt is estimated to have grown by $373 million, or 2.9% in 2012-13, while the debt-to-GDP ratio is estimated to be relatively unchanged at 34.5%.

The growth trajectory for Nova Scotia is set to gain momentum after a disappointing 2012, as business investment intentions point to a stronger outlook for 2013 and 2014. The provincial budget assumed real GDP growth of 1.3% in 2013 followed by 1.5% in 2014, while the latest private sector consensus tracked by DBRS projects slightly higher growth of 1.5% and 2.0%, respectively. A modest recovery in the offshore gas sector and further preparatory work in anticipation of the federal shipbuilding project getting underway will be supportive of economic activity, while a more favourable outlook for U.S. economic growth is also encouraging.

The 2013-14 budget presented on April 4, 2013, marks the culmination of Nova Scotia’s four-year back-to-balance plan. A very modest surplus of $16 million is projected for 2013-14, as Nova Scotia is the only Atlantic province to be targeting a positive fiscal position. On a DBRS-adjusted basis, this translates into a shortfall of $106 million, or just 0.3% of GDP, one of the best outlooks among provinces. The Province plans to maintain modest surpluses through 2016-17, pointing to very manageable DBRS-adjusted deficits of less than 1.0% of GDP. As such, debt growth is expected to be relatively modest at $390 million, or 3.0% in 2013-14, pointing to a slight uptick in the debt-to-GDP ratio to 34.7%. Over the medium term, Nova Scotia’s debt burden should begin to decline, approaching 33% of GDP by 2016-17. The fact that Nova Scotia has already stabilized its debt-to-GDP ratio while others continue to rise provides DBRS with comfort that financial management remains sound and supports the rating action. Of note, a provincial election is required by June 2014 that could result in a change in government and, ultimately, fiscal direction. However, DBRS believes there is a consensus among parties to manage in a fiscally prudent manner, which would continue to support the assigned ratings.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

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

The Series AH Government Guaranteed Debt of Nova Scotia Power Finance Corporation matured on November 15, 2012. As such, Series AH has been removed from Nova Scotia Power Finance Corporation’s debt listed below.