DBRS Morningstar Confirms Province of New Brunswick at A (high), Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Long-Term Debt rating of the Province of New Brunswick (New Brunswick or the Province) at A (high) and its Short-Term Debt rating at R-1 (middle). Concurrently, DBRS Morningstar confirmed the Guaranteed Long-Term Liabilities and Guaranteed Short-Term Liabilities ratings of New Brunswick Municipal Finance Corp. at A (high) and R-1 (middle), respectively. All trends are Stable.

The government's focus on long-term financial sustainability, its recent track record of budget outperformance, and a robust population growth in the Province lend stability to the credit profile, despite significant cost and affordability pressures (worsened by the high inflation and interest rates), fluctuations in commodity prices, and the global geopolitical conflict contributing to a slowdown in economies of key trading partners.

For the year ended March 31, 2023, New Brunswick estimates a surplus of $862.6 million, relative to a budgeted surplus of $35.2 million. On a DBRS Morningstar-adjusted basis, this translates to an adjusted surplus of $749.5 million, or 1.6% of GDP—one of the best results among Canadian provinces. Over the medium term, New Brunswick is budgeting for small surpluses of $40.0 million in 2023–24, $27.0 million in 2024–25, and $39.0 million in 2025–26. On an adjusted basis, DBRS Morningstar estimates small deficits over this period that will remain manageable at less than 0.5% of GDP.

The Province forecasts net debt-to-GDP to be 24.9% in 2023–24, steadily declining from a peak of 40.8% in 2015–16. On a DBRS Morningstar-adjusted basis, the forecast for modest economic growth suggests the debt-to-GDP ratio should continue to decline to 28.6% by 2025–26 (the adjusted ratio was last at this level prior to 2009–10). DBRS Morningstar notes that this downward trend in the debt-to-GDP ratio provides for increased flexibility at the current rating level.

New Brunswick forecasts the economy will grow by 0.8% in 2023, 1.6% in 2024, and 1.2% in 2025. Population growth, driven by continued strength in international immigration, should support the outlook, potentially providing upside to the current outlook. However, DBRS Morningstar recognizes that there remain near- and medium-term risks to the outlook in the form of inflation, disruption in labour markets and supply chains (materials, transportation, etc.), exchange rates relative to key trading partners, and impacts from broader geopolitical conflicts and trade tensions.

RATING DRIVERS
A positive rating action is considered unlikely as the ratings remain constrained by New Brunswick's weak economic fundamentals. A negative rating action could result from some combination of sustained deterioration in operating results, the debt-to-GDP ratio, and New Brunswick Power Corporation (NB Power) failing to reduce leverage, causing DBRS Morningstar to no longer treat NB Power as self-supported.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929; May 17, 2022).

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

DBRS Morningstar applied the following principal methodology:
Rating Canadian Provincial and Territorial Governments (https://www.dbrsmorningstar.com/research/413265; April 28, 2023)

The following criteria has also been applied:
DBRS Morningstar Criteria: Guarantees and Other Forms of Support (https://www.dbrsmorningstar.com/research/411694; March 28, 2023)

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

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

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at [email protected].

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