Morningstar DBRS Confirms the 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
The Province remains well-positioned to withstand temporary weakness in the macroeconomic backdrop and potential commodity price volatility without materially eroding its credit profile. However, a softer near-term fiscal outlook, rising debt, and trade and policy uncertainty could present financial challenges.

Based on 2024-25 mid-year update, fiscal performance has deteriorated relative to the spring budget, with the Province anticipating a deficit of $743.5 million in 2024-25 (compared with a budgeted deficit of $273.2 million). The deterioration primarily stemmed from higher-than-anticipated agriculture-related insurance payouts, in addition to higher spending for other government priorities (public safety, health, etc.). The Province has not presented an updated medium-term outlook, but the Saskatchewan Party's costed platform (in the fall 2024 general election) included additional spending and tax measures that will push fiscal balance out two years to 2028-29.

Saskatchewan's debt is projected to gradually rise as the Province borrows to fund the Saskatchewan Capital Plan and offset deficits, but remains manageable for the current credit ratings. On an adjusted basis, Morningstar DBRS estimates the debt-to-GDP ratio rising from 23.4% in 2024-25 to 24.8% in 2027-28. This is only marginally higher than Morningstar DBRS' prior expectations.

The Province is forecasting real GDP growth of 1.4% in 2024 and 1.7% in 2025, while nominal GDP is projected to grow at 3.7% annually in 2024 and 2025. Positive (though slowing) population growth, still-favorable labour market conditions, and generally strong demand for Saskatchewan's commodities support these projections. However, an adverse change in trade policies with the U.S., softer commodity prices, unfavorable crop conditions, and any slowdown in key trading economies (U.S., China, and Japan) could negatively affect the export and economic outlook.

CREDIT RATING DRIVERS
A positive credit 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 large and sustained operating deficits, material deterioration in the debt-to-GDP ratio, and material weakness in one or more critical rating factors.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
ESG Considerations had a relevant effect on the credit analysis.

Environmental (E) Factors
The following Environmental factor had a relevant effect on the credit analysis: Carbon and GHG Costs. Saskatchewan is the fourth-largest greenhouse gas (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/Governance factor(s) 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 RATING FACTORS (CRFs) AND FINANCIAL RISK ASSESSMENT (FRA)

A) Weighting of CRFs
In the analysis of Saskatchewan, the CRFs 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 CRFs and the FRA
In the analysis of Saskatchewan, the CRFs carry 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 (April 15, 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 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@dbrsmorningstar.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, Global Sovereign Ratings
Rating Committee Chair: Thomas R. Torgerson, Managing Director, Global Sovereign Ratings
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.

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