DBRS Confirms British Columbia at AA (high) and R-1 (high), Trends Stable

DBRS has today confirmed the Issuer Rating of the Province of British Columbia (the Province) at AA (high), along with its Long-Term and Short-Term Debt ratings at AA (high) and R-1 (high), respectively. DBRS has also confirmed the ratings of British Columbia Hydro & Power Authority (BC Hydro) (for more information, see report published May 23, 2013). All trends remain Stable. As anticipated, a provincial election was called for May 14, 2013, prior to the February budget being passed. The Liberal Party, led by Christy Clark, achieved an unexpected majority and the Province reintroduced its 2013-14 budget on June 27, 2013, maintaining its plan to achieve balance in the current fiscal year.

Based on public accounts, British Columbia recorded a deficit of $1.1 billion in 2012-13. This translates into a DBRS-adjusted shortfall of $2.6 billion, or 1.2% of GDP, once adjustments are made, to: (1) recognize capital expenditures on a cash basis, rather than as amortized; (2) exclude the net change in regulatory accounts from income for British Columbia Hydro & Power Authority (BC Hydro); and (3) to exclude the forecast allowance and non-recurring items. Fiscal performance was very close to budget expectations and represents the second-best outcome among Canadian provinces. As a result, DBRS-adjusted debt grew by 9.3%, pushing the debt-to-GDP ratio to 18.9% as of March 31, 2013, up from 17.9% the previous year.

For 2013-14, the budget points to a small surplus of $153 million, down slightly from the February forecast and first quarter results confirm that the surplus target remains largely intact. On a DBRS-adjusted basis, this translates into a deficit of $1.8 billion, or 0.8% of GDP. Total revenues are projected to rise by 5.2%, supported by a basket of new tax measures, while expenditure management remains a key area of focus and is expected to contain spending growth to 3.1%. The medium-term plan points to a continuation of small surpluses, which are likely to result in DBRS-adjusted deficits of 0.6% of GDP in 2014-15 and just 0.4% of GDP in 2015-16. Several collective agreements come up for renewal in 2014-15, the results of which will be a key determinant in the Province’s ability to achieve expenditure targets. Based on this plan, the debt-to-GDP ratio is expected to reach 20.3% in 2013-14, at which point it should stabilize through 2015-16. This debt burden remains consistent with previous expectations and very manageable for the credit profile.

The Province has lowered its forecast for real GDP growth in 2013 to 1.4% as of the June update, down from 1.6% as originally assumed in the February budget, comparable to the current private sector average of 1.5%. For 2014, the private sector consensus points to real growth of 2.4%, although the Province has prudently used a lower forecast for planning purposes. Amid a sluggish domestic economy, DBRS notes that a move to export-driven growth is unlikely to fully assert itself until uncertainty around the U.S. fiscal situation and debt ceiling is resolved.

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.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.