The Manitoba government's debts are growing a whole lot faster than its revenues, the Moody's rating agency pointed out this week. This is not a terrible problem at the moment, but it is an early step into a debt trap that is likely to raise borrowing costs and force painful cutbacks in services a little later if the province continues on its present path.
By the bond rating agency's calculations, Manitoba's debt burden is expected to reach about 150 per cent of revenues in 2016-17, versus 141 per cent expected for 2013-14 and 101 per cent recorded in 2008-09.
The lenders who buy the province's bonds will wonder about the province's ability to repay its debts in these conditions and will demand an interest rate related to the rising risk of default. If the economic conditions turn against Manitoba a few years down the road, the government will be unable to borrow and spend its way through a rough patch.
The agency maintained a grade of Aa1 on Manitoba's bonds, but it switched the outlook to negative from stable. The outlook could be returned to stable if Manitoba's debt burden as a percentage of revenue stabilizes and if the province seems likely to meet its target of a balanced budget in 2016-17. If, however, the province shows a loss of fiscal discipline and if the debt keeps growing so the 2016-17 target will probably be missed, Manitoba bonds will be given a lower grade.
Finance Minister Jennifer Howard should be grateful for this warning. Her job within the government is to veto the generous and open-handed ambitions of her cabinet colleagues in defence of the taxpayers who have to pay the bills. This is a lonely job in government, but now she has a powerful ally. Moody's, speaking for the lenders who refill her treasury from time to time, has shown her and the lenders and the Manitoba public what path the government is on and where it is leading.
The minister did not sound especially grateful in her first comments on the Moody's report. She thought the government was already practising the fiscal discipline the agency was asking for. "It is challenging," she said. "(But) we know that we live in a province where we can have massive changes because of flooding or forest fires or other things that happen, and no Manitobans expect us to say 'no' to fighting the flood or protecting their homes because we have a date that we want to balance the budget."
Manitobans expect the government to manage its finances in a responsible manner.
If you know you live in a province that has floods and fires, you should budget for those expenses. If the expenses for floods and fires exceed expectations, you should cut other expenses.
The minister misunderstood the choice the province faces. No one has asked her to withhold flood protection "because we have a date that we want to balance the budget."
The point Moody's is making is the current level of borrowing and spending leads into a debt trap that will impose harsh choices on the government and bitter consequences on Manitoba's people.
The minister's remarks appeared to justify the rating agency's doubts. She regards the 2016-17 target for a balanced budget as a matter of no particular significance, a goalpost that should be moved if the rivers flood or the forests burn. Since the rivers flood and the forests burn every year in Manitoba, the government can always find some excuse for moving the goalpost.
Since the minister making the excuses is the minister of finance, the one who is supposed to know what fiscal discipline is and why it matters, what hope is there someone in the Manitoba government will read the Moody's report and get the point?