DBRS Confirms British Columbia at AA (high) with a Stable Trend

DBRS Limited (DBRS) confirmed the Issuer Rating, Long-Term Debt rating and Renminbi Bonds rating of the Province of British Columbia (B.C. or the Province) at AA (high) and the Short-Term Debt rating at R-1 (high). All trends are Stable. The ratings remain well supported by the Province’s diverse and growing economy, positive budget outlook, ample fiscal capacity and low debt burden.

In July 2017, the New Democratic Party (NDP) assumed power after 16 years in opposition. At that time, the new government outlined its core policy priorities (making life more affordable, improving public services and inclusive economic growth), which have guided policy decisions. This has translated into significant changes in tax and fiscal policy. Since then, there has been rapid growth in government spending, with increased funding for core government programs and introducing major new initiatives.

The Province has sought to temper concerns about the pace of spending growth by emphasizing its commitment to balanced budgets, conservative budgeting practices and an ongoing focus on debt affordability. The Province continues to report positive operating results, and its budget projections suggest modest surpluses and a low debt burden through the medium term. The Province is also addressing governance and other concerns related to government business enterprises, which should help address recent losses and lead to more sustainable, resilient operating results.

British Columbia projected a surplus of $374 million for 2018–19, which is modestly better than the budget forecast and includes more than $1.0 billion in allowances and contingencies, suggesting there is likely considerable upside potential for 2018–19 results.

The 2019 budget projects a similarly sized surplus of $274 million for 2019–20, which equates to a DBRS-adjusted shortfall of $1.9 billion, or 0.6% of gross domestic product (GDP). The budget projects relatively strong revenue (+3.5%) and expenditure (+4.7%) growth on a DBRS-adjusted basis. The DBRS-adjusted debt-to-GDP ratio is projected to remain stable around 15.0%.

The Province’s economy has expanded quickly in recent years. Growth has been relatively broad based, with gains in consumption, investment and trade supported by the improving global economy, low interest rates and moderate population growth. Growth is now moderating to a more sustainable pace because of a slowdown in consumer spending and housing market activity, along with the effects of a tight labour market. The Province projects growth of 2.4% in 2019 and for growth to trend downward to about 2.0% over the medium term, which is similar to the private-sector consensus.

RATING DRIVERS:
No rating action is anticipated through the medium term. A positive rating action requires the Province to maintain a sustainable budget position and for its DBRS-adjusted debt-to-GDP ratio to fall well below 15.0% on a sustainable basis. A negative rating action could arise from a sustained deterioration in operating results and marked increased in the debt-to-GDP ratio.

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 & Criteria.

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.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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