DBRS Confirms the Province of Nova Scotia at A (high), Stable Trend

DBRS Limited (DBRS) 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. The trends on all ratings are Stable. The ratings and trends are supported by the Province’s outlook for modest surpluses and a slowly declining debt-to-gross domestic product (GDP) ratio over the medium term. The effects of an aging society, including a declining labour force and relatively weak long-term economic growth potential, are likely to limit the rate of improvement in credit metrics and upward pressure on the rating.

In 2016–17, Nova Scotia’s fiscal performance continued to stand out on the provincial landscape, with the Province reporting a surplus of $150.0 million. On a DBRS-adjusted basis, recognizing capital expenditures as incurred rather than as amortized, this equates to a surplus of $119.4 million or 0.3% of GDP. For 2017–18, the Province has budgeted for a surplus of $132 million or a DBRS-adjusted deficit of $105 million, or 0.2% of GDP, with similar DBRS-adjusted deficits of roughly 0.2% to 0.3% of GDP expected over the course of the fiscal outlook. Near-balanced operating results and modest borrowing requirements for capital and public sector entities suggests that Nova Scotia’s DBRS-adjusted debt burden will continue to fall modestly each year, from 35.8% in 2016–17 to approximately 33% through 2020–21. The Province’s budget is based on a low but relatively stable outlook for real GDP growth of 1.1% for 2017 and 0.5% in 2018, and is conservative compared with the private-sector consensus tracked by DBRS, which currently anticipates 1.5% and 1.2% growth in 2017 and 2018, respectively.

RATING DRIVERS
The trends on the ratings are Stable, and DBRS does not anticipate a rating action over the medium term, in part because of structural economic factors that are likely to limit improvement in credit metrics. A positive rating action would be dependent on continued fiscal discipline and sustained economic improvement, leading to meaningful debt reduction. Alternatively, downward pressure on the rating could arise from a significant deterioration in fiscal performance or material increase in debt stemming from relaxed fiscal discipline or a serious economic shock.

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 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.

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.