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

DBRS has today confirmed the Issuer Rating and Long-Term Debt ratings of the Province of Manitoba (the Province or Manitoba) at A (high), along with its Short-Term Debt rating at R-1 (middle). The trend on all ratings is Stable. Improvement in fiscal performance has been slow, although Manitoba remains on track to restore balance by 2016-17, as presented last year. While debt has increased notably from pre-recession levels, it now appears to be stabilizing, aided by supportive economic conditions and stronger external demand.

For the fiscal year ended March 31, 2014, Manitoba reported a deficit of $522 million in its recently released public accounts. On a DBRS-adjusted basis, after including capital expenditures as incurred rather than as amortized, this translates into a shortfall of $1.3 billion, or 2.2% of GDP, compared with a deficit of $1.6 billion anticipated at the time of DBRS’s last review. The better-than-expected performance was entirely due to lower-than-planned capital spending, while revenues rose by 4.5%, consistent with budget. As a result, total DBRS-adjusted debt grew by 7.2% to $23.1 billion, pushing the debt-to-GDP ratio to 38.2% from 36.9% a year earlier. This represents the fourth-highest debt burden among Canadian provinces.

Based on the current private sector consensus tracked by DBRS, real GDP is forecast to grow by 1.9% in 2014, which compares with the 2.2% assumed by Manitoba at budget time. However, for 2015, the private sector consensus looks somewhat stronger, pointing to real growth of 2.4%. A return to normal crop production will exert a modest drag on growth in 2014, but this is expected to subside the following year. In addition, investment activity is poised to regain some momentum heading into 2015, and an improving outlook for U.S. demand and a weaker Canadian dollar should be positive for exports and help to offset a soft domestic environment.

After experiencing a delay last year, Manitoba’s target to restore fiscal balance by 2016-17 remains intact in the current budget. For 2014-15, a deficit of $357 million is projected, or $1.3 billion on a DBRS-adjusted basis. This equates to 2.1% of GDP -- still one of the largest fiscal shortfalls among Canadian provinces. Aside from targeted tax credits for seniors and one to promote increased apprenticeship opportunities, this year’s budget was devoid of any significant tax measures. Meanwhile, total spending is forecast to advance by 2.9% but will require sound fiscal discipline to help achieve targets. This includes limiting the growth in health-care spending to just 1.5% -- an ambitious target. In this regard, the government has introduced a new lean council intended to enhance service delivery and workflow, although there are no specific savings targets associated with this initiative. Moreover, labour negotiations will be particularly important, with a number of collective agreements coming up for renewal. As a result, the debt-to-GDP ratio will continue to inch up to 38.6% in 2014-15 before stabilizing around 39% thereafter. This represents a slight improvement from the peak foreseen at the time of DBRS’s last review and is considered manageable for the rating.

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 methodologies are Rating Canadian Provincial Governments, Rating Agents of the Crown and DBRS Criteria: Guarantees and Other Forms of Explicit Support, which can be found on our website under Methodologies.

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

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.