DBRS Confirms Province of Manitoba at A (high) and R-1 (middle)

DBRS has today confirmed the Long- and Short-Term Debt ratings of the Province of Manitoba (Manitoba or the Province) at A (high) and R-1 (middle), respectively. The trend on both ratings remains Stable, although DBRS notes that the Province is weathering the recession better than most of its peers. Manitoba’s continued spending discipline and its resilient economy has helped to limit fiscal erosion and debt growth, leaving the Province well positioned to further improve its already sound credit profile when the economic recovery gains momentum.

Manitoba is one of only two provinces that have planned for a fiscal surplus in 2009-10, budgeted at $48 million. While this translates into a DBRS-adjusted deficit of $573 million, or 1.1% of GDP, it nonetheless represents a sound outlook in relation to the challenging global economic environment and the difficulties experienced by provincial peers. Only a modest decline in revenues is expected, while expenditure growth will be limited at 4.2%, driven by health, education and capital spending initiatives. This follows a better-than-expected result in 2008-09, when a DBRS-adjusted surplus of $129 million was posted, demonstrating the Province’s commitment to prudent fiscal management. The current plan points to another DBRS-adjusted deficit of around $600 million for 2010-11, after which DBRS expects the Province to return to balance, provided the economic recovery takes hold as suggested by private sector forecasts.

After falling to 28.5% of GDP in 2008-09, the fourteenth straight year of decline, Manitoba’s debt-to-GDP ratio is expected to rise to 31.2% in 2009-10. This is a relatively modest deterioration when compared with the pace of debt accumulation in most other provinces and is consistent with DBRS’s expectation that the Province could weather the downturn without considerable erosion to its debt profile. Debt will continue growing in 2010-11 but, assuming a modest economic recovery, the debt-to-GDP ratio should peak at 32% before fiscal balance is restored. This is a significant improvement from the last recession in 1991, when the Province experienced deficits approaching 3.0% of GDP and added 10% to its debt-to-GDP ratio.

Following solid real GDP growth of 2.4% in 2008, the second best performance of all provinces, Manitoba is again expected to outperform most provinces in 2009, as the private sector consensus points to only a 0.4% contraction in real GDP, demonstrating the resilience of the provincial economy. A growing service sector and a fairly diverse manufacturing base will support economic activity, aided by the Province’s four-year, $4.7 billion capital plan. For 2010, the private sector consensus points to real GDP growth of 2.0%, although DBRS believes there is still considerable uncertainty with respect to the timing and pace of the recovery. DBRS also notes that after ten years in power, Premier Gary Doer recently announced his intention to resign this fall. Policy continuity appears likely, however, especially since no election is due before 2011, although the upcoming change in leadership adds an element of uncertainty to the outlook. DBRS remains of the view that stabilizing economic conditions, continued fiscal prudence and an improving debt outlook could have positive implications for the Province’s Long-Term Debt rating at the next review.

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

The applicable methodology is Rating Canadian Provincial Governments, which can be found on our website under Methodologies.

This is a Corporate (Public Finance) rating.