DBRS Morningstar Confirms the Province of Saskatchewan at AA (low) and R-1 (middle), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and the Long-Term Debt and Short-Term Debt ratings of the Province of Saskatchewan (Saskatchewan or the Province) at AA (low), AA (low), and R-1 (middle), respectively. All trends are Stable.

Saskatchewan presented its 2021 budget on April 6, 2021, which marks a departure from the Saskatchewan Party's pre-election plan presented in August 2020 and now entails a longer path to balance and a somewhat increased debt burden. Like all provinces, Saskatchewan continues to prioritize its Coronavirus Disease (COVID-19) response while also laying the groundwork for a strong recovery once the pandemic subsides.

The Province is forecasting a deficit of $2.6 billion in 2021–22, compared with a shortfall of $1.1 billion in 2020–21. On a DBRS Morningstar-adjusted basis, this equates to a shortfall of $2.9 billion, or 3.6% of GDP. DBRS Morningstar makes adjustments to recognize capital spending as incurred rather than as amortized to arrive at the adjusted surplus (deficit).The medium-term plan now targets a return to balance by 2026–27, two years later than previously expected. On an adjusted basis, DBRS Morningstar anticipates a deficit of 2.5% of GDP in 2022–23 before falling below 2.0% of GDP in subsequent years. While this fiscal outlook marks a deterioration from previous expectations, the steady decline in deficits will help to stabilize the debt burden in short order.

Based on the Province's medium-term outlook, the debt-to-GDP ratio (DBRS Morningstar-adjusted) is estimated to reach 32.3% of GDP in 2021–22 and to stabilize around 36.0% by 2024–25. Given the stronger-than-anticipated hand off from 2020–21 and faster-than-expected economic recovery, it is likely that Saskatchewan will outperform these projections. DBRS Morningstar had previously anticipated that the debt-to-GDP ratio would remain within a range of 30% to 35%.

Saskatchewan's economy is showing signs of recovery in 2021, resulting from global economic recovery, coronavirus vaccine rollouts, recovery in oil price and demand, and improving consumer and business sentiment. The Province has projected real growth of 3.4%, which is notably weaker than the current private-sector consensus of 5.3%. Over the medium term, the Province expects growth to normalize between 2.3% and 3.2% through 2025.

RATING DRIVERS
A negative rating action is unlikely, but could result from a combination of persistent economic weakness, large operating deficits, and further deterioration in the debt-to-GDP ratio. A positive rating action would require a rebound in economic activity paired with a recovery in operating results and the debt-to-GDP ratio.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is Rating Canadian Provincial and Territorial Governments (May 3, 2021; https://www.dbrsmorningstar.com/research/377881), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/37326).

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.

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving the report, contact 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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