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

DBRS Limited (DBRS) confirmed the Issuer Rating and Long-Term Debt 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 (Manitoba Hydro) at A (high) and R-1 (middle), respectively, also with Stable trends.

The outlook for the provincial credit profile is improving. After a decade of chronic deficit spending and debt growth, budget deficits are now declining and the debt-to-gross domestic product (GDP) ratio is stabilizing.

Preliminary results for 2017–18 show a modest improvement, with the deficit falling to $726 million from $765 million in 2016–17. More significantly, the deficit was $114 million lower than budgeted primarily because of lower spending. On a DBRS-adjusted basis, the result equates to a shortfall of $1.3 billion, or 1.8% of GDP.

The Province remains strongly committed to deficit reduction, and this commitment appears increasingly credible. Manitoba has outperformed its targets in each of the last two years and lowered its deficit targets. Overall, the Province’s 2018–19 budget exceeded DBRS’s expectations. Manitoba has projected a deficit of $521 million for 2018–19, which equates to a DBRS-adjusted deficit of $1.1 billion, or 1.5% of GDP. Nevertheless, on a relative basis, this remains one of the largest provincial deficits.

DBRS has observed a shift in the culture and institutions of government. There are efforts underway to increase the central capacity within the provincial government and an increasing focus on budget results and program outcomes. The lowering of deficit targets is positive, though the pace of deficit reduction is largely unchanged with annual improvements targeted to be in the range of $105 million to $140 million. The objective to balance the budget remains firmly planted in the 2020–24 timeframe. As noted previously, the protracted timeframe to return to balance is not without risk.

Stable, broad-based growth is expected to persist over the next two years. Consistent with private-sector expectations, the Province has forecast growth of 2.0% in 2018 and 1.6% in 2019. Strong population growth, elevated capital spending and favourable export market conditions remain conducive to economic activity in the Province.

DBRS believes the Province’s DBRS-adjusted debt burden has now stabilized at around 41.0% of GDP and expects the debt burden to remain around this level over the next three years.

Concurrent with the release of Manitoba’s rating report, DBRS is publishing a commentary discussing recent developments affecting Manitoba Hydro and how DBRS views Manitoba Hydro in the context of the provincial credit profile.

Manitoba’s Issuer Rating is solidly placed in the A (high) category. Nevertheless, a negative rating action could result from a sustained deterioration in the provincial economy and the failure to stem chronic deficit spending and debt growth. A positive rating action could result from a return to a balanced budget 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 DBRS Criteria: Guarantees and Other Forms of Support, 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.

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 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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.