Manitoba’s credit rating stays course with challenges ahead

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This article was published 06/11/2023 (719 days ago), so information in it may no longer be current.

A global credit agency has maintained Manitoba’s A rating after the NDP’s election win last month, but issued a cautious outlook owing to uncertainty over the government’s fiscal policy amid economic headwinds.

On Monday, DBRS Morningstar confirmed the province’s A (high) issuer and long-term debt rating. It also held the short-term debt rating at R-1 (middle).

Crown utility Manitoba Hydro also received an A rating for long-term obligations and a R-1 rating in short-term obligations.

“The confirmation reflects a gradually improving medium-term fiscal outlook, offset by the expectation of challenging macroeconomic conditions,” an analysis released by DBRS states.

“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.”

However, risks to the outlook are increasing, said Aditi Joshi, lead analyst for Manitoba and vice-president at DBRS Morningstar.

Risks include the province’s limited flexibility to generate revenue, threats to the government’s plan to eliminate deficits and the “unfolding economic slowdown,” Joshi explained. High interest rates and volatility in commodity prices also factor into the equation.

“In our interactions with the province, the NDP government appears committed to the province’s long-term financial sustainability,” she said. “However, many of these risks… will limit the improvement in ratings through the near term.”

On the campaign trail, the NDP committed to adopting the fiscal framework contained in the then-PC government’s Budget 2023, which forecast declining deficits through to 2026-27.

“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.”– an analysis released by DBRS Morningstar

The NDP also committed to balancing the budget within one term, while promising more than a half-billion dollars in new spending.

In the current fiscal year, the province forecast a $363-million deficit, which remained unchanged in the first-quarter update.

The credit agency said Manitoba’s debt outlook is starting to stabilize, but warned increased spending could hinder a “quick return to balance.”

It estimated the province’s debt to “modestly decline” over the next three years, if the government sticks to its current plan to reduce deficits and limit debt-financed capital spending.

Joshi noted the current medium-term outlook is based on the 2023 budget and conversations with the province prior to the Oct. 3 election.

Going forward, the agency will be looking at the NDP government’s ability to balance its planned spending with the challenging economic environment, she added.

A credit rating upgrade could follow if economic uncertainties are resolved and there is evidence of resilient fiscal performance, according to the agency.

“To the extent that the NDP government is able to maintain the fiscal trajectory for the province that we have seen in the past couple years, to the extent that those risks are resolved, we might consider a positive rating action,” Joshi said.

Finance Minister Adrien Sala said he was pleased to see DBRS maintain the province’s credit rating and note the NDP’s commitment to a balanced budget.

“Our government understands that to achieve this goal, we must be measured and pragmatic when it comes to our spending and aggressive when it comes to economic growth,” Sala said Monday in a statement.

“As we continue to learn about Manitoba’s fiscal outlook, we grow more concerned that the previous government failed in its role of managing taxpayer dollars responsibly.”

danielle.dasilva@freepress.mb.ca