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 Province’s credit profile has improved in recent years with the government’s efforts to address chronic deficit spending through fundamental reforms; however, deficit spending will persist, and the debt burden will remain meaningfully above its pre-recession level through the medium term.

Preliminary results for 2018–19 show a significant improvement with the deficit now projected to be $470 million, down from $695 million in 2017–18 and $51 million lower than the budget forecast. The better-than-expected result was mainly because of lower-than-planned health spending. On a DBRS-adjusted basis, the result equates to a shortfall of $739 million (1.0% of gross domestic product (GDP)), its lowest level in a decade.

Manitoba has projected a budget deficit of $360 million for 2019–20, which equates to a DBRS-adjusted deficit of $902 million, or 1.2% of GDP. The pervasive budget themes remain that of structural reform to deliver programs more effectively and improve program outcomes, deficit reduction and tax reduction. The budget contained few major policy announcements, though the Progressive Conservative (PC) government will deliver on its commitment to reduce the provincial sales tax by one percentage point on July 1, 2019.

The medium-term outlook is largely unchanged with the Province planning to balance the budget during the PC government’s second mandate, likely in 2022–23 or 2023–24. While the protracted time frame is not without risk, DBRS is confident in the government’s commitment to balance the budget over the medium term. There is clear evidence of a strong political commitment and a record of budget outperformance. The government also has introduced fundamental reforms to improve program outcomes, cost effectiveness, enhance financial controls and strengthen budget and financial management practices.

With improving budget results, the Province’s DBRS-adjusted debt burden has now stabilized, ranging between 41.0% and 42.0% of GDP. DBRS expects the debt-to-GDP ratio to remain around this level over the next three years and then to decline gradually in subsequent periods.

Manitoba’s economy continues to be among the most diversified and resilient, posting steady growth annually. Consistent with private-sector expectations, Manitoba’s economy is forecast to grow 1.7% in 2019 and 1.5% in 2020. Strong population growth, elevated investment and favourable export market conditions remain conducive to economic activity in the Province.

RATING DRIVERS

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. While unlikely, 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.

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.

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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