DBRS Confirms Province of Saskatchewan at AA and R-1 (high)

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Long-Term Debt ratings of the Province of Saskatchewan (the Province) at AA, along with its Short-Term Debt rating at R-1 (high). DBRS has also confirmed the ratings of Saskatchewan Power Corporation (for more information, see Saskatchewan Power Corporation report published September 10, 2015). All trends are Stable. The Province’s sound fiscal management, low debt burden and resilient economy support the strong credit profile and provide it with ample flexibility to address the near-term challenges associated with weakness in the energy sector.

The Province has continued to demonstrate sound fiscal management in the face of weakening economic conditions. In 2014–15, Saskatchewan recorded a consolidated surplus of $62 million, which after adjusting for capital expenditures on a cash basis, equates to a DBRS-adjusted deficit of $473 million, or 0.6% of gross domestic product (GDP) and represents the second-best result among provinces. The debt burden rose slightly to 14.9% from 14.7% on account of modest borrowing and a contraction in nominal GDP.

In 2015–16, economic growth is expected to be significantly weaker due to the decline in oil prices and its impact on business investment. The budget points to real GDP growth of 0.8% in 2015, before recovering to 2.4% in 2016. However, in the wake of a further deterioration of economic conditions, the private sector consensus points to even lower growth in both 2015 and 2016.

The budget projects a surplus of $107 million for 2015–16, though DBRS notes Saskatchewan has changed its budget presentation to exclude non-cash pension costs from its surplus/deficit figure. On a DBRS-adjusted basis this translates to a deficit of $1.6 billion, or 2.0% of GDP, and is largely due to increased capital spending and a significant non-cash pension expense resulting from changes in the actuarial assumptions used to value the pension liabilities for the closed defined benefit plans. Program spending growth is otherwise modest and reflects the government’s continued efforts at expenditure management. Total revenue growth is projected to be 1.7% as no material revenue changes were enacted in the budget. Over the medium term, the Province intends to maintain balanced budgets through to 2018–19, which translates into DBRS-adjusted deficits falling to about 0.7% of GDP. As a result, DBRS estimates the debt-to-GDP ratio could rise to nearly 19%, which is considered manageable for the existing ratings.

A provincial election will be held in April 2016. The most recent opinion polls suggest the governing party, the Saskatchewan Party, remains popular with the electorate.

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.

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

The applicable methodologies are Rating Canadian Provincial Governments and Rating Canadian Provincial Agents of the Crown, which can be found on our website under Methodologies.

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.