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. All trends are Stable, supported by the Province’s unmatched fiscal discipline and a gradually improving economic outlook. British Columbia’s debt burden also remains very manageable for the profile and provides considerable financial flexibility, although DBRS notes that it continues to be meaningfully above the pre-recession low.

Based on preliminary results, the Province reported a surplus of $175 million in 2013-14. This translates into a DBRS-adjusted deficit of $1.8 billion, or 0.8% of GDP, which marks a moderate improvement from budget and is one of the best fiscal results among provinces. Although total revenues grew by 3.9%, this fell somewhat short of expectations, partly owing to a low inflationary environment. Total DBRS-adjusted spending was relatively well-contained, rising by just 1.8% as the Province made efforts to identify savings in light of slower than planned revenue growth. Sound fiscal results and underspending in the capital budget have resulted in slower than anticipated, though still meaningful, DBRS-adjusted debt growth of 8.8%. Combined with downward revisions to nominal GDP by Statistics Canada, this pushed the debt-to-GDP ratio up to 20.6%, still the third-lowest debt burden among Canadian provinces.

British Columbia continues to demonstrate strong fiscal discipline and remains in an enviable position relative to provincial peers, as the latest budget points to a small surplus of $184 million in 2014-15. On a DBRS-adjusted basis, this translates into a deficit of $1.8 billion, or a very manageable 0.8% of GDP. After implementing a number of tax changes to shore up revenues in last year’s budget, the government opted for only minor changes in the current fiscal year. As a result, revenue growth is expected to be moderate, though slightly above projected spending growth. The fiscal outlook points to DBRS-adjusted deficits of 0.5% of GDP or less through 2016-17 and continues to incorporate prudent assumptions and budget contingencies. As such, DBRS-adjusted debt, as a proportion of GDP, is projected to decline slightly over the forecast horizon.

After recording estimated real GDP growth of just 1.4% in 2013, the Province has assumed real growth of 2.0% for 2014, which appears to be somewhat conservative in relation to the private sector consensus tracked by DBRS. The domestic economy is expected to remain relatively soft, with any improvement coming from a strengthening in the external environment. Most forecasters expect this improving momentum to continue into 2015, for which the Province has assumed real GDP growth of 2.3%, prudently below the current private sector consensus. Budget 2014 also emphasizes the potential for liquefied natural gas (LNG) development over the longer term, although any positive economic benefits have not been built into budget projections.

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.