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

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Long-Term Debt rating of the Province of Manitoba (Manitoba or the Province) at A (high) and confirmed the Province’s Short-Term Debt rating at R-1 (middle). DBRS Morningstar also confirmed The Manitoba Hydro-Electric Board’s Long-Term Obligations at A (high) and its Short-Term Obligations at R-1 (middle). All trends are Stable, supported by a well-diversified and resilient economy, increased focus on fiscal sustainability prior to the onset of the Coronavirus Disease (COVID-19) pandemic, and prudent debt management. These attributes provide Manitoba with ample flexibility to withstand the near-term deterioration in financial risk factors.

Manitoba's economy and public finances have been significantly affected by the coronavirus pandemic. The Province expects economic activity to contract by 5.2%, and recent forecasts suggest the budget deficit will surge to $2.9 billion in 2020–21 ($2.4 billion after including additional federal assistance not captured in the Q1 update). The projected operating result equates to a DBRS Morningstar-adjusted deficit of $3.0 billion, or 4.2% of GDP. The weaker result stems from a significant decrease in own-source revenue and higher program spending, partially offset by increased federal transfers.

While the economic impact of the pandemic has been painful for all provinces, Manitoba's economy is performing better than most other provinces. On most economic indicators, Manitoba is among the top-performing provinces in the country, including employment levels, the unemployment rate, retail sales, manufacturing sales, merchandise exports, and residential and nonresidential investment.

Manitoba's most recent forecasts assume a relatively quick recovery, which appears increasingly uncertain. Manitoba has experienced a surge in coronavirus cases in recent weeks, which has prompted the government to reimpose various social and economic restrictions.

Manitoba, like most provinces, has not released a multiyear budget forecast. However, the extent of the budget deficit and the broader economic weakness suggest the Province will likely face several years of operating losses.

The significant deterioration in the budget outlook along with a planned increase in capital spending have also led to a significant increase in debt. The Province's borrowing requirement has increased to $8.6 billion, while net debt is forecast to rise to $28.1 billion, or 39.6% of GDP. Manitoba's DBRS Morningstar-adjusted debt ratio is projected to rise to 48.2% in 2020–21 from 42.7% in the prior year. DBRS Morningstar expects the adjusted debt ratio to remain elevated over the next two years.

Rating Drivers
Manitoba's critical rating factors are well anchored and, despite near-term deterioration in financial risk assessment factors, DBRS Morningstar does not anticipate a rating change over the medium term. 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. A negative rating action could result from a sustained deterioration in the provincial economy and failure to stem chronic deficit spending and debt growth.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

The principal methodologies are Rating Canadian Provincial and Territorial Governments (May 13, 2020) and Global Methodology for Government Related Entities (March 10, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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 [email protected].

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

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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