DBRS Confirms the Province of Prince Edward Island at A (low) and R-1 (low), Stable Trends

DBRS Limited (DBRS) has confirmed the Issuer Rating and Long-Term Debt and Short-Term Debt ratings of the Province of Prince Edward Island (PEI or the Province) at A (low), A (low) and R-1 (low), respectively. All trends are Stable. The Province’s economy and budgetary results have improved in recent years, slowing debt growth. Together, these factors are positive for the credit profile and may provide some uplift to the ratings over the medium term if sustained.

Preliminary results for 2016–17 show a modest deterioration from plan with the deficit widening to $18 million, or $26 million on a DBRS-adjusted basis after recognizing capital investment as spent rather than as amortized. The Province was on track to post a modest surplus, but a data revision to the harmonized sales tax (HST) allocation formula, announced in late December 2016, resulted in a $30 million reduction to HST revenue.

For 2017–18, the fiscal outlook continues to improve. The Province presented a balanced budget, which is the first in a decade and the most positive credit development in recent years. The balanced budget translates to a DBRS-adjusted deficit of $24 million, or 0.4% of gross domestic product (GDP). Moderate revenue growth and rising federal funding for infrastructure will enable the Province to moderately expand its health budget and increase capital investment in priority areas.

The economic outlook is positive for PEI. The Province’s economy expanded by 2.4% in 2016 with the construction of underwater electric cables boosting investment, while the outlook for 2017 and 2018 suggests moderate growth in the range of 1.0% to 1.5%, consistent with private-sector expectations. The longer-term outlook for growth is also favourable, with improving population growth, a weak Canadian dollar and rising demand for the Province’s principal exports.

The improving budgetary results and growing economy have contributed to a significant decline in the Province’s debt burden. The DBRS-adjusted debt burden is projected to decline to 41.2% of GDP this year, down from a peak of 49.1% in 2013–14. Over the medium term, DBRS expects the debt burden to decline further, falling below 40% of GDP in 2019–20.

A positive rating action could occur if the Province demonstrates its ability to maintain a balance budget on a sustainable basis and the DBRS-adjusted debt burden falls to 40% of GDP with the expectation that it will fall further over the medium term.

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 methodology is Rating Canadian Provincial Governments, which can be found on dbrs.com under Methodologies.

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.

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.