DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Long-Term Debt rating of the Province of British Columbia (B.C. or the Province) at AA (high) and the Short-Term Debt rating at R-1 (high). DBRS Morningstar also confirmed British Columbia Hydro and Power Authority’s Long-Term Obligations rating at AA (high) and Short-Term Obligations rating at R-1 (high). All trends are Stable.
The confirmations reflect the underlying strength and diversity of the Province's economy and its disciplined fiscal policy and management practices, combined with considerable fiscal flexibility and a strong balance sheet. The consistent track record of outperformance, use of prudent forecast assumptions, expectation of continued economic recovery, and considerable fiscal flexibility will support the Province to withstand any pressures arising from the ongoing evolution of global geopolitical conflicts and the heightened economic uncertainty (particularly in the form of increasing inflation).
The Province's 2022 budget forecasts a deficit of $5.5 billion in 2022–23, compared with a $483 million shortfall now anticipated in 2021–22. On a DBRS Morningstar-adjusted basis, this equates to a shortfall of $9.4 billion, or 2.6% of GDP. Once again, B.C. has suspended its balanced budget requirement and has presented a three-year fiscal outlook. The Province projects deficits of $4.2 billion and $3.2 billion for 2023–24 and 2024–25, respectively. On a DBRS Morningstar-adjusted basis, these equate to deficits of 2.1% to 1.6% of GDP, respectively. Previously, DBRS Morningstar expected the Province to present a full return to balance in the 2022 budget and three-year plan, but the Province's use of fiscal guardrails now include a requirement for year-over-year declining deficits, and the suspension of the balanced budget legislation until 2024–25 will be reviewed on an annual basis. Despite this seemingly relaxed approach to balanced budgets, the significant level of prudence leaves room for outperformance as has been B.C.'s trademark.
Despite rising debt from a pandemic-driven deficit, which was further exacerbated by the November 2021 flooding and earlier wildfires, B.C. continues to have one of the lowest debt burdens among provinces. In 2021–22, the DBRS Morningstar-adjusted debt—defined as tax-supported debt and unfunded pension liabilities—rose by $1.9 billion to $61.7 billion. However, combined with growth in the nominal GDP, this led to an improvement in the debt-to-GDP ratio to 17.8% from 19.3% the year prior. DBRS Morningstar estimates adjusted debt to reach 19.6% of GDP in 2022–23 and approach roughly 21.8% of GDP by 2024–25, which is an improvement compared with the prior forecast. Adjusted debt also includes unfunded pension liabilities, which B.C. projects to be just $1.0 million as at March 31, 2022, and expects these to remain low.
For 2022, the Province anticipates real GDP growth of 4.0%, followed by 2.5% in 2023. Like past budgets, this forecast is conservative relative to the private-sector consensus. This forecast assumes a continued reopening of the economy, further recovery in the service sector, and a stimulative impact as the rebuilding efforts gain momentum following the November 2021 floods.
At the current rating category, a positive rating action is not contemplated. A negative rating action could result from a sustained deterioration in operating results and marked increase in the debt-to-GDP ratio beyond the current expectations.
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no environmental, social, and governance factors that had a significant or relevant effect on the credit analysis.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
All figures are in Canadian dollars unless otherwise noted.
The principal methodologies are Rating Canadian Provincial and Territorial Governments (June 1, 2022; https://www.dbrsmorningstar.com/research/397817) and Global Methodology for Government Related Entities (March 8, 2021; https://www.dbrsmorningstar.com/research/374948), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (May 17, 2022; https://www.dbrsmorningstar.com/research/396929).
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The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
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