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

DBRS Limited (DBRS) has today confirmed the Issuer Rating and the Long-Term and Short-Term Debt ratings of the Province of Manitoba (Manitoba or the Province) at A (high), A (high) and R-1 (middle), respectively. All trends are Stable. DBRS has also confirmed the Long-Term and Short-Term Obligations ratings of The Manitoba Hydro-Electric Board at A (high) and R-1 (middle), respectively, also with Stable trends.

The Province’s credit profile continues to be supported by a diverse and growing economy, though flexibility within the existing ratings is being eroded by the persistence of large operating deficits and ongoing debt growth.

Preliminary results for 2016–2017 show a modest improvement from expectations, with the budget deficit lower than expected at $872 million. On a DBRS-adjusted basis, which includes capital investment rather than amortization, this equates to a shortfall of $1.7 billion, or 2.4% of gross domestic product (GDP). The deficit is among the largest recorded by the province and similar in magnitude to those recorded in the previous two years

The Provincial economy continues to be supportive, with stable and consistent growth expected over the next two years. Consistent with private sector expectations, the Province expects growth of about 2.0% per year, which should translate into moderate revenue growth. The Province is projecting a deficit of $840 million in 2017–2018, which equates to a deficit of $1.7 billion, or 2.3% of GDP on a DBRS-adjusted basis. Over the medium term, the Province continues to reiterate its commitment to balance the budget during its second mandate and has outlined near-term objectives of $150 million in annual deficit reduction.

The outlook provided in the 2017–2018 budget is largely consistent with the direction provided by the government since taking office, though the pace of fiscal consolidation does appear somewhat slower than what DBRS expected at the time of the last review and in the months leading up to the budget.

The persistence of large operating deficits and ongoing capital investment have contributed to relatively strong growth in the Province’s debt burden over the last decade, which has now reached an estimated 43.0% of GDP at March 31, 2017. As deficits narrow and the economy continues to expand, DBRS projects the debt burden’s stabilizing around 45.0% over the next three years, commensurate with the ratings.

A negative rating action is not expected in the near term but could occur if the Province fails to reduce the size of its operating deficits materially and debt continues to rise strongly.

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 principal methodologies are Rating Canadian Provincial Governments and the DBRS Criteria: Guarantees and Other Forms of Support, which can be found on dbrs.com under Methodologies.

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

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

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