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

DBRS Limited (Morningstar DBRS) confirmed the Province of Manitoba's (Manitoba or the Province) Issuer Rating and Long-Term Debt credit rating at A (high) as well as its Short-Term Debt credit rating at R-1 (middle). Morningstar DBRS also confirmed The Manitoba Hydro-Electric Board's (Manitoba Hydro or the Utility) Long-Term Obligations credit rating at A (high) and its Short-Term Obligations credit rating at R-1 (middle). All trends are Stable.

KEY CREDIT RATING CONSIDERATIONS
Manitoba has one of the more resilient and diversified economies among provinces; however, the medium-term outlook has deteriorated with larger deficits and sizable capital needs pushing the debt-to-GDP ratio beyond prior expectations. In addition to broader geopolitical tensions, supply chain disruptions, trade uncertainty arising from the U.S. federal elections, and environmental risks, a slowdown in population growth in response to the federal government's announcement to limit international immigration could add economic uncertainty.

The Province reported a deficit of $2.0 billion for the year ended March 31, 2024, compared with a budgeted deficit of $363 million. The Morningstar DBRS-adjusted deficit was $3.0 billion, or -3.4% of GDP (the highest in more than a decade). Manitoba's first-quarter fiscal update reflects results in line with those projected in the spring 2024 budget. Manitoba forecast a deficit of $796 million in F2025, which translates to an adjusted deficit of $1.8 billion, or 1.9% of GDP (adjusted for amortization and budgeted capital investment). The Province did not publish an updated medium-term forecast, but the spring budget forecast narrowing deficits before achieving balance in 2027¿28. Over the medium term, Morningstar DBRS believes that spending pressures and sizable capital commitments could present challenges if economic performance deteriorates.

Manitoba's debt burden remains manageable for the current ratings, although deterioration in the fiscal outlook will inhibit improvement through the medium term. Manitoba's first quarter report for 2024-25 projects net debt-to-GDP to be 36.5% in F2025 (up slightly from 35.7% in F2024). On an adjusted basis, Morningstar DBRS estimates F2025 adjusted debt to be $41.6 billion, or 44.3% of GDP, and rising over the subsequent three years to more than 49.0%.

The Province is projecting real GDP growth of 1.0% in 2024 and 1.9% in 2025, compared with private sector consensus of 1.0% in 2024 and 1.6% in 2025.

CREDIT RATING DRIVERS
A credit rating upgrade could result from a sustained fiscal and debt improvement, or the reduction or removal of the negative credit ratings overlay related to political environment and institutional framework. A negative credit rating action could result from a sustained deterioration in the provincial economy and failure to stem chronic deficit spending and debt growth.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental, 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 Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

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

(A) Weighting of CRFs
In the analysis of Manitoba, the CRFs are considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of Manitoba, 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 Manitoba, the CRF carries greater weight than the FRA.

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

Morningstar DBRS applied the following principal methodologies:

-- Rating Canadian Provincial and Territorial Governments (April 15, 2024), https://dbrs.morningstar.com/research/431208
-- Global Methodology for Rating Government Related Entities (April 15, 2024), https://dbrs.morningstar.com/research/431178

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 following methodology has also been applied:

Morningstar DBRS Criteria: Approach to ESG Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781

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.

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.

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