DBRS Morningstar notes B.C.’s strong economic performance and fiscal ‘prudence’
A global credit rating agency issued a scorecard on Wednesday, in response to Tuesday’s budget, that maintains the province’s AA (high) credit rating.
DBRS Morningstar flags B.C.’s rising debt levels, but acknowledges the province’s relatively strong economic performance and fiscal ‘prudence’ in the form of billions of dollars in contingencies, and cautious forecasts for growth future GDP.
Budget 2022 forecasts a deficit of $5.5 billion in 2022-23 and a shortfall of $483 million in 2021-22. DBRS Morningstar equates this to a shortfall of $9.4 billion, or 2.6% of GDP.
DBRS notes that the BC government has suspended balanced budget legislation, but also notes that the government is budgeting prudently and planning for significant contingencies, including underestimating growth projections.
The “prudence” built into Budget 2022 includes:
- pandemic recovery contingencies of $2 billion in 2022-23 and $1 billion in 2023-24;
- a forward allocation of $1 billion each year;
- $2.8 billion CleanBC general program and contingencies; and
- conservative GDP growth assumptions
“Despite this seemingly relaxed approach to balanced budgets, we expect the significant level of conservatism built into budget assumptions to leave room for outperformance, as has been the hallmark of British Columbia,” DBRS says in its dashboard. .
“The budget plan is based on an assumed real GDP growth of 4.0% in 2022, followed by 2.5% in 2023. Like previous budgets, this forecast is conservative relative to private sector consensus.”
“During our last review in June 2021, we projected that British Columbia would exceed the budgeted debt forecast, and it has come to fruition. The Province now projects the net debt-to-GDP ratio to reach 18.9 per cent in 2022-23 and 22.3 per cent by 2024-25, which represent significant improvements over the 2021 budget forecast.”
The rating agency notes that British Columbia’s economy has rebounded better from a pandemic-induced slowdown than many jurisdictions.
“The labor market showed considerable strength in 2021, with employment returning to pre-pandemic levels mid-year and the unemployment rate averaging 6.5% from 8 .9% in 2020. Consumer spending remained strong, with retail sales increasing 12.4%. according to Statistics Canada. At the same time, residential investment continued to be supported by robust real estate activity, and non-residential investment strengthened.
“Improving global demand and rising commodity prices strongly supported exports, although floods in November 2021 disrupted the flow of goods at the end of the year.”