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

DBRS Limited (DBRS Morningstar) confirmed the Province of Manitoba’s (Manitoba or the Province) Issuer Rating and Long-Term Debt rating at A (high) as well as its Short-Term Debt rating at R-1 (middle). DBRS Morningstar also confirmed The Manitoba Hydro-Electric Board's (Manitoba Hydro or the Utility) Long-Term Obligations rating at A (high) and its Short-Term Obligations rating at R-1 (middle). All trends are Stable. The confirmation reflects a gradually improving medium-term fiscal outlook, offset by the expectation of challenging macroeconomic conditions. Nevertheless, Manitoba has one of the most resilient and diversified economies among provinces and, provided that fiscal performance remains equally resilient in the face of economic headwinds, this could lead to a positive rating action over the near to medium term.

In October 2023, the New Democratic Party secured a majority in Manitoba's general election (see DBRS Morningstar’s commentary, "Province of Manitoba Election 2023: Balancing Risks and Government Priorities," published October 5, 2023). The new government plans to achieve a balanced budget in its first term, in contrast with the 2023 budget that forecast declining deficits through 2026–27 (less than 1% of GDP on an adjusted basis). DBRS Morningstar believes that increased spending measures and capital investments could hinder a quick return to balance.

For the year ended March 31, 2023, the DBRS Morningstar-adjusted deficit was $258 million (-0.3% of GDP). The improvement from an adjusted deficit of $1.0 billion (-1.3% of GDP) in the prior year was mainly because of faster-than-expected economic recovery, healthy tax revenues, and a strong rebound in net income from government business enterprises.

The Province's first-quarter fiscal update, released before the October election, reflects results in line with those projected in the March 2023 budget. Manitoba is forecasting a deficit of $363 million in F2024, which translates to a DBRS Morningstar-adjusted deficit of $1.4 billion (including budgeted capital investment and amortization).

The debt outlook is starting to stabilize, but challenges abound. The 2023 budget projects net debt-to-GDP of 34.6% in F2024, up slightly from 34.4% in F2023. On an adjusted basis, DBRS Morningstar estimates that F2024 net tax-supported debt will be $37.5 billion (40.5% of GDP) and will modestly decline over the subsequent three years if the Province adheres to its current fiscal plan to reduce deficits and limit debt-financed capital funding.

CREDIT RATING DRIVERS
DBRS Morningstar acknowledges the improvement in Manitoba's fiscal and debt risk metrics, but remains cautious about some uncertainty related to the economic environment and the new government's fiscal policy. A credit rating upgrade could result from the resolution of economic uncertainties and evidence that fiscal performance remains resilient alongside a resilient economy, resulting in the reduction or removal of the negative credit ratings overlay. Although unlikely, a negative rating action could result from a sustained deterioration in the provincial economy and failure to stem chronic deficit spending and debt growth.

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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (July 4, 2023).

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

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

The following methodologies have also been applied:
-- Global Methodology for Rating Government Related Entities (February 28, 2023), https://www.dbrsmorningstar.com/research/410361/global-methodology-for-rating-government-related-entities

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.

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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit 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 credit 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 credit ratings are under regular surveillance.

Information regarding DBRS Morningstar credit ratings, including definitions, policies, and methodologies, is available on 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