DBRS Morningstar Confirms the Province of Prince Edward Island Ratings at “A” and R-1 (low), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Long-Term Debt rating of the Province of Prince Edward Island (PEI or the Province) at "A" as well as the Short-Term Debt rating at R-1 (low). All trends are Stable. The ratings remain underpinned by the longer-term outlook for PEI's economy and the government's ongoing commitment to responsible fiscal policy. While the Province has not projected a return to balance over the medium term, DBRS Morningstar believes PEI should be able to withstand temporary weakness in its financial risk assessment without an adverse change to the current ratings.

The budget projects a deficit of $97.6 million (1.0% of GDP) in 2023–24. The government has not projected a return to balance over the forecast horizon. The multiyear outlook envisions ongoing, albeit narrowing, deficits of $58.0 million and $31.5 million in fiscal years 2024–25 and 2025–26, respectively.

On a DBRS Morningstar-adjusted basis, the outlook suggests shortfalls will shrink to roughly 1.0% of GDP through 2024-25. DBRS Morningstar notes that continued deficits and a sizable capital program will contribute to debt growth through the medium term.

Total DBRS Morningstar-adjusted debt has grown in recent years and is forecast to continue rising through the medium term. Based on the latest forecast and DBRS Morningstar's assumptions, adjusted debt will rise to $4.2 billion by 2025–26 (or roughly 40% of GDP). PEI's debt burden, when measured as a share of GDP, appears manageable, though any improvement in this ratio remains contingent upon sustained economic growth and deficit elimination over the next few years.

PEI's economic growth is forecast to moderate to 1.3% in 2023 and 1.4% in 2024, still stronger than most of its Atlantic peers. The Province anticipates healthy population growth, housing starts, tourism activity, and retail trade should mitigate the impact of persistently high inflation, labour shortages, and volatile commodity prices.

RATING DRIVERS
The ratings remain strongly placed in the "A" category. A positive rating action could result from a combination of change in one or more critical rating factors coupled with a sustained recovery in operating results and notable decline in the debt-to-GDP ratio. A negative rating action could result from some combination of persistent economic weakness, large operating deficits, and further and substantial deterioration in the debt-to-GDP ratio.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

Notes:
All figures are in Canadian dollars unless otherwise noted. Public finance statistics reported on a general government basis unless specified.

The principal methodology is Rating Canadian Provincial and Territorial Governments (April 28, 2023; https://www.dbrsmorningstar.com/research/413265/rating-canadian-provincial-and-territorial-governments). In addition, DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (May 17, 2022; https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings).

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

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].

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 not 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.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577