DBRS Confirms Province of Nova Scotia at A (high) and R-1 (middle), Stable Trends

DBRS Limited (DBRS) has today confirmed the Issuer Rating of the Province of Nova Scotia (Nova Scotia or the Province) at A (high), along with the Long-Term Debt and Short-Term Debt ratings at A (high) and R-1 (middle), respectively. Concurrently, the Guaranteed Long-Term Debt and Guaranteed Short-Term Debt ratings of the Nova Scotia Municipal Finance Corporation have been confirmed at A (high) and R-1 (middle), respectively, and the Government Guaranteed Debt rating of Nova Scotia Power Finance Corporation has been confirmed at A (high).

The trends on all ratings are Stable and supported by Nova Scotia’s sound fiscal outlook, strong liquidity and a manageable debt burden that appears to be on a downward trend. However, a challenging demographic profile, leading to below average growth is likely to limit further improvement.

Based on Nova Scotia’s recently released public accounts, a defi¬cit of $144 million was recorded in 2014–15. After making adjust¬ments to recognize capital expenditures as incurred, rather than as amortized, this equates to a DBRS-adjusted shortfall of $266 million, or just 0.7% of gross domestic product (GDP). This was notably better than expected and compares favourably with most provincial peers. As a result, debt grew by 4.1% in 2014–15, con¬sistent with expectations, which saw the debt-to-GDP ratio edge up to 35.7%, from 35.5% in 2013–14. This represents the second-lowest debt burden among Atlantic Provinces.

The Province’s 2015–16 budget has assumed real GDP growth of 1.7% and 1.5% in 2015 and 2016, respectively. This appears reasonable when com¬pared with the current private sector consensus tracked by DBRS of 1.6% and 2.0%, respectively. A favourable investment outlook is expected to be a key contributor to growth over the near term with a number of large capital projects underway, including the federal shipbuilding procurement contract and the Maritime Link transmission line. However, absent meaningful productiv¬ity improvements, a shrinking labour force is likely to dampen growth potential over the medium to longer term.

For 2015–16, the budget points to a deficit of $98 million. This translates into a DBRS-adjusted shortfall of $157 million, or 0.4% of GDP. Total revenue growth is forecast at 1.8% as this year’s budget was relatively light on revenue measures. Meanwhile, DBRS-adjusted spending is projected to be well contained in 2015–16, growing by just 0.6% based on budget estimates. Nova Scotia is now targeting a return to fiscal surplus by 2016–17, one year earlier than last year’s plan. As a result, DBRS-adjusted defi¬cits are expected to remain very manageable at less than 0.5% of GDP through 2018–19. Furthermore, debt growth is expected to remain relatively modest at 2% or less per annum and points to a gradual decline in the Province’s debt-to-GDP ratio toward 33.0% by 2018–19. This is among the best fiscal outlooks of all provinces and should leave Nova Scotia well prepared to weather the ongoing global economic uncertainty without experiencing a notable deterioration in its credit profile.

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 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.