DBRS Confirms the Province of Nova Scotia at A (high) with a 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. DBRS also confirmed the Guaranteed Long-Term and Short-Term Debt ratings of the Nova Scotia Municipal Finance Corporation at A (high) and R-1 (middle), respectively, and the Government Guaranteed Debt of the Nova Scotia Power Finance Corporation at A (high). All trends are Stable. A continuation of strong fiscal management and expectations for small DBRS-adjusted deficits should contribute to a gradually declining debt-to-gross domestic product (GDP) ratio over the medium term. However, the effects of an aging population 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.

For 2017-18, the Province reported a surplus of $230.0 million, which is its second consecutive surplus and a marked improvement from budget expectations. On a DBRS-adjusted basis, this translates to a near-balanced fiscal position resulting in a declining debt burden, as debt-to-GDP fell slightly to 35.3% at March 31, 2018, from 35.8% a year earlier.

Nova Scotia’s 2018 budget represents the second budget for the Liberal government since being re-elected in May 2017. With no new major policy announcements, this was largely a status quo budget. The government continues to emphasize responsible fiscal management and the continuation of small surpluses through 2021-22. Supported by steady, albeit slow economic growth, the Province’s approach has provided it with the flexibility to undertake targeted new spending in priority areas, namely health and education. Over the medium term, this points to small DBRS-adjusted deficits of less than 1.0% of GDP throughout the plan. As a result, debt-to-GDP is expected to continue falling to approximately 31% by 2021-22.

Nova Scotia’s budget is based on a real GDP growth forecast of 1.0% in 2018 and 0.8% in 2019, roughly in line with the current private-sector consensus tracked by DBRS. As large capital projects have reached completion, subdued non-residential investment points to a moderation in the growth outlook. Near-term risks include the ongoing NAFTA renegotiations as well as the uncertain impact of tightening monetary policy on consumer spending. Meanwhile, demographic headwinds present a longer-term structural challenge to the Nova Scotia economy, as slow population growth and an aging workforce will weigh on longer-term growth potential.

RATING DRIVERS
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 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.

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