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

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

KEY CREDIT RATING CONSIDERATIONS
Higher debt needs arising from a large capital plan and recent revenue volatility have softened the Province's near-term fiscal outlook. Nevertheless, the Province remains well-positioned to withstand temporary weakness in the macroeconomic backdrop and potential commodity price volatility without materially eroding its credit profile.

For the year ended March 31, 2024, the Province reported a surplus of $182.2 million, compared with a surplus of $1.6 billion in the prior fiscal year. On a Morningstar DBRS-adjusted basis, the 2023-24 deficit equates to $377.9 million, or 0.3% of GDP.

For 2024-25, the budget projects a deficit of $273.2 million (an adjusted shortfall of $1.2 billion, or 1.0% of GDP), predominantly stemming from lower potash prices and softer corporate tax revenues. Over the medium term, the Province anticipates modest, albeit rising, surpluses as revenues recover with economic growth, and the Province expands resource production capacity.

Saskatchewan's debt is projected to gradually rise as the Province borrows to offset deficits and fund the Saskatchewan Capital Plan, thus reducing flexibility within the current credit ratings. The budget projects the net debt-to-GDP ratio to be roughly 14.3% by 2027-28 (up from 13.3% in 2023-24), or 24.3% on a Morningstar DBRS-adjusted basis (up from 22.1% in 2023-24).

The Province is forecasting real GDP growth of 1.0% in 2024, 1.8% in 2025, and averaging 2.2% over the subsequent three years. Ongoing population growth, favorable labour market conditions, and generally strong demand for Saskatchewan's commodities support these projections. However, softer commodity prices, relatively high inflation rate, unfavorable crop conditions, and a slowdown in key trading partners (U.S., China, and Japan) could negatively affect the economic outlook.

CREDIT RATING DRIVERS
A positive rating action could result from a combination of an improvement in one or more critical rating factors and sustained improvement in key financial risk metrics. A negative rating action could result from persistent economic weakness, large and sustained operating deficits, and material deterioration in the debt-to-GDP ratio.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
Environmental (E) Factors
Based on the "Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings," Morningstar DBRS views the carbon and greenhouse gas (GHG) costs factor as relevant to the credit ratings. Saskatchewan is the fourth-largest GHG emitter (mainly from oil & gas, agriculture, and electricity) among Canadian provinces, and its GHG emissions are the second-highest on a per-capita basis.
There were no Social or Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) https://dbrs.morningstar.com/research/427030

CRITICAL RISK FACTORS (CRF) AND FINANCIAL RISK ASSESSMENT (FRA)

(A) Weighting of CRF Factors
In the analysis of Saskatchewan, the CRF factors are considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of Saskatchewan, the FRA factors are considered in the order of importance contemplated in the methodology.

(C) Weighting of the CRF and the FRA
In the analysis of Saskatchewan, the CRF carries greater weight than the FRA.

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

Morningstar DBRS applied the following principal methodology:

Rating Canadian Provincial and Territorial Governments (15 April 2024)
https://dbrs.morningstar.com/research/431208

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (April 15, 2024; https://dbrs.morningstar.com/research/431186), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

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

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

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 info-DBRS@morningstar.com.

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.
Morningstar DBRS 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.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed credit ratings:

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

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

Lead Analyst: Aditi Joshi, Vice President,
Rating Committee Chair: Thomas R. Torgerson, Managing Director,
Initial Rating Date: May 15, 1987

Information regarding Morningstar DBRS ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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