DBRS Limited (DBRS) confirmed the Issuer Rating and the Long-Term Debt and Short-Term Debt ratings of the Province of Saskatchewan (Saskatchewan or the Province) at AA, AA and R-1 (high), respectively. All trends are Stable. DBRS also confirmed the ratings of Saskatchewan Power Corporation (for more information, see the Saskatchewan Power Corporation report published December 10, 2018).
The Province’s budget was challenged by the commodity price downturn in 2015, but the economic and fiscal recovery are now underway. Most significantly, Saskatchewan fulfilled its three-year commitment to balance the 2019 budget following the plan that was laid out in the 2017 budget. That plan included a series of immediate revenue and expense measures to be followed by ongoing spending restraint in subsequent years. Saskatchewan’s commitment to prudent fiscal policy, along with the pace of fiscal consolidation, stands out among provinces.
Preliminary results for 2018–19 continue to show significant improvement with the deficit now projected to be $379.9 million, down from a peak deficit of $1.5 billion in 2015–16. On a DBRS-adjusted basis, the result equates to a shortfall of $892 million, or 1.1% of gross domestic product (GDP).
Saskatchewan has projected a modest budget surplus of $34.4 million for 2019–20, which equates to a DBRS-adjusted deficit of $231 million, or 0.3% of GDP. Beyond fulfilling the government’s commitment to balance, the 2019 budget reiterates the Saskatchewan Party’s longstanding commitment to a pro-growth agenda, a competitive tax regime and low debt. The budget also provided modest new funding to several priority areas, including mental health, children and families.
The medium-term outlook is largely unchanged, with the Province forecasting modest surpluses and annual capital investment of about $1.0 billion. Taken together, this suggests that the DBRS-adjusted debt-to-GDP peaked at 24.9% in 2018–19 and will fall to 24.5% in 2019–20 before trending toward 22.0% over the medium term. Nevertheless, the debt ratio will remain well above the level that prevailed prior to the commodity price correction (14.3% in 2014–15).
Saskatchewan’s economic recovery has been uneven in recent years with unexpected challenges in the mining and oil and gas industries. Real GDP growth is projected to remain weak at 1.2% in 2019 primarily because of reduced residential and non-residential investment. Over the medium term, however, the Province expects growth to return to a longer-term trend potential of about 2.0% annually.
Saskatchewan’s credit rating is not expected to change in the near to medium term. Nevertheless, a negative rating action could result from a sustained deterioration in the provincial economy and a corresponding deterioration in budgetary results and debt. A positive rating action is unlikely and would require greater economic diversification, balanced budgets on a sustained basis and a significant reduction in the provincial debt burden.
All figures are in Canadian dollars unless otherwise noted.
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