DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Long-Term Debt rating of the Province of Prince Edward Island (PEI or the Province) at "A" as well as the Short-Term Debt rating at R-1 (low). All trends are Stable. The ratings remain underpinned by the longer-term outlook for PEI's economy and the government's ongoing commitment to responsible fiscal policy. While the Province has not projected a return to balance over the medium term, DBRS Morningstar believes PEI should be able to withstand temporary weakness in its financial risk assessment without an adverse change to its current ratings.
The Province has forecast a budget deficit of $92.9 million for 2022–23, which equates to a DBRS Morningstar-adjusted deficit of $202.4 million, or 2.3% of GDP, after including capital expenditures and excluding amortization. While this projected deficit is appreciably higher than that in the prior year ($26.5 million), DBRS Morningstar notes that the overall outlook for 2022 has improved compared with the prior budget, which projected deficits of more than $110 million through F2022 and F2023. On a DBRS Morningstar-adjusted basis, deficits are likely to decline to roughly 1.0% of GDP over the medium term.
Total DBRS Morningstar-adjusted debt has grown in recent years and is forecast to continue rising through the medium term. Based on the latest provincial forecast shared with DBRS Morningstar, adjusted debt will be approximately $3.7 billion in 2022–23 (or roughly 41% of GDP). PEI's debt burden, when measured as a share of GDP, appears manageable, though any improvement in this ratio remains contingent upon sustained economic growth and deficit elimination over the next few years.
The economic outlook for 2022 points to real GDP growth of 2.9%; however, further waves of the Coronavirus Disease (COVID-19) pandemic, labour and materials shortages, ongoing geopolitical disputes, and potential impacts on agricultural commodities comprise the most prominent risks to the downside.
The ratings remain strongly placed in the "A" category. A positive rating action would require sustained economic expansion coupled with a sustained recovery in operating results and for the debt-to-GDP ratio to fall below pre-pandemic levels. A negative rating action could result from some combination of persistent economic weakness, large operating deficits, and further deterioration in the debt-to-GDP ratio to above 50%.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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 methodology is Rating Canadian Provincial and Territorial Governments (June 1, 2022; https://www.dbrsmorningstar.com/research/397817), 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).
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at email@example.com.
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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