DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Long-Term Debt rating of the Province of Manitoba (Manitoba or the Province) at A (high) and confirmed the Province's Short-Term Debt rating at R-1 (middle). DBRS Morningstar also confirmed The Manitoba Hydro-Electric Board's Long-Term Obligations at A (high) and its Short-Term Obligations at R-1 (middle). All trends are Stable, supported by a well-diversified and resilient provincial economy, the government's commitment to fiscal sustainability, and prudent debt management. These attributes provide stability to the ratings, although a weakening global economic outlook and an upcoming provincial election in 2023 add an element of policy uncertainty and limit ratings improvement in the near term.
For the year ended March 31, 2022, the Province reported a deficit of $704 million, improved from a $2.1 billion deficit in the prior year. The ongoing economic recovery, along with federal supports and strict cost management, offset additional pressures arising because of the ongoing (and evolving) Coronavirus Disease (COVID-19) pandemic. On a DBRS Morningstar-adjusted basis, this equated to a deficit of $973 million, or -1.2% of GDP.
The Province presented its Q1 fiscal update in September 2022 and is forecasting a deficit of $202 million in F2023. On a DBRS Morningstar-adjusted basis, this equates to a shortfall of $768 million, or -0.9% of GDP. Manitoba projects diminishing deficits over the medium term; however, recent budget outperformance indicates that a balanced budget remains well within reach. DBRS Morningstar believes that growing fiscal and economic headwinds are likely to stall the improvement in Manitoba's finances.
The next provincial election is scheduled to be held on October 3, 2023. Current polls suggest that a change in government is possible, which adds an element of fiscal and economic policy uncertainty to the outlook.
Manitoba continues to make steady progress toward reducing its debt burden as a share of GDP from the pandemic-induced increase. As at March 31, 2022, DBRS Morningstar-adjusted (net tax-supported) debt was $35.1 billion (or 44.0% of GDP), down from 46.4% in 2020–21. Over the medium term (between 2022–23 and 2025–26), Manitoba projects debt growth will moderate as the Province continues to reduce its budgeted deficits and limit the need for debt-financed capital spending. On a DBRS Morningstar-adjusted basis, the Province’s debt-to-GDP ratio is expected to fall below 40% by 2025–26, if fiscal targets are adhered to.
DBRS Morningstar acknowledges the improvement in Manitoba's fiscal and debt risk metrics but remains cautious in light of the uncertain economic environment and the upcoming 2023 provincial election. A positive rating action could result from the resolution of these uncertainties and sustained fiscal improvement and moderation in debt-to-GDP over the near to medium term. Although unlikely, a negative rating action could result from a sustained deterioration in the provincial economy and failure to stem chronic deficit spending and debt growth.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/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 (May 17, 2022).
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 Rating Government Related Entities (May 6, 2022; https://www.dbrsmorningstar.com/research/396497), which can be found on dbrsmorningstar.com under Methodologies & Criteria.
A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions.
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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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