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

DBRS Limited (DBRS) confirmed the Issuer Rating and Long-Term Debt and Short-Term Debt ratings of the Province of Saskatchewan (Saskatchewan or the Province) at AA, AA and R-1 (high), respectively. All trends are Stable. DBRS also confirmed the ratings of Saskatchewan Power Corporation (for more information, see the Saskatchewan Power Corporation report published November 20, 2017).

The Province’s fiscal position was challenged by the downturn in the commodity sector, but the economic and fiscal recovery are now well underway. The outlook for budgetary results and debt have improved significantly, providing greater flexibility to the credit profile.

The Province’s deficit fell sharply in 2017–18, reaching $595 million, down from $1.2 billion the year before. On a DBRS-adjusted basis, this equates to a shortfall of $1.6 billion, or 2.0% of gross domestic product (GDP). The improvement stems from the deficit reduction measures announced in the 2017–18 budget along with modest recovery in the provincial economy and resource revenues.

The economy is now firmly recovering, with activity in the primary sector outpacing expectations and offsetting declines in public-sector expenditures. The Province is projecting modest growth of 1.3% in 2018 and for growth to stabilize around 2.5% over the medium term. After significant volatility over the past decade, the Province is expecting economic activity and growth to return to more normal levels as the oil and potash markets stabilize.

The Province continues to execute on its three-year plan to balance the budget. With many of the more significant measures having already been introduced, the 2018–19 budget was largely centred on limiting expense growth. The Province has projected a deficit of $365 million for 2018–19, down from a peak of $1.5 billion in 2015–16. On a DBRS-adjusted basis, this equates to a deficit of $873 million, or 1.1% of GDP. The Province remains committed to balancing the budget in 2019–20, which appears feasible to DBRS provided no major downside risks materialize.

DBRS projects that the DBRS-adjusted debt burden will now peak at 25.0% of GDP in 2018–19, which is slightly higher than what was expected at the time of the last review. Nevertheless, with the deficit falling quickly and the capital plan contracting, DBRS continues to expect that the debt burden will decline over the medium term and range between 22.0% and 24.0% of GDP.

Saskatchewan’s credit rating is solidly placed in the AA category. Nevertheless, a negative rating action could result from a sustained deterioration in the provincial economy and a corresponding deterioration in budgetary balance and debt. A positive rating action is unlikely and would require greater economic diversification, a return to balanced budgets on a sustained basis and a significant reduction in the provincial debt burden.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Canadian Provincial Governments and Rating Canadian Provincial Agents of the Crown, which can be found on dbrs.com under Methodologies.

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 under Related Documents or by contacting us at info@dbrs.com.

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

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