Saskatchewan tabled its 2022–23 budget on Wednesday, demonstrating a solid fiscal position amid rising resource prices.
The province projected a $463-million deficit for 2022–23, compared to the much larger (though improved) $2.2-billion deficit expected for 21–22.
“The improvement comes as spending pulls back from very elevated levels, especially in agriculture where drought-related insurance payouts and support were significant,” said Robert Kavcic, senior economist and director with BMO Economics, in a report.
The province’s goal is to eliminate the deficit by 2026–27, and that could be achieved this year based on prices for West Texas Intermediate, Kavcic said.
On the revenue side, while rising oil and potash prices will offer a boost — as will the budget’s PST extension to admissions and entertainment — other revenue sources are expected to fall modestly, including those from taxation, federal transfers and investment income. Projected revenue for 2022–23 is $17.2 billion, down by 1.9% from the previous year.
The projection is based on “reasonable” economic growth assumptions, Kavcic said, with real GDP projected to grow by 3.7% in 2022–23, falling to 2.5% growth in 2023–24 and averaging 2.2% the following two years.
“The key message here is that the Saskatchewan economy has effectively recovered from the pandemic, and looks to be better supported than during the five years before Covid, where growth averaged just 0.5%,” he said.
Reflecting the pullback in drought-related spending, expenses are projected to fall to $17.6 billion, down from $19.7 billion the year before. Still, spending of 2% annualized growth through 2025–26 could be a challenge given inflation, Kavcic said.
With the declining deficit, total borrowing costs are projected to fall to $3.5 billion in 2022–23 from $4.2 billion.
In a report on Wednesday, CIBC Capital Markets noted that Saskatchewan plans to access international markets to a larger extent to fund debt.
The province said in December that by fiscal year-end it “could be in the USD and/or European markets if funding conditions were attractive,” the report said, noting that the province issued a Swiss-franc-denominated 10-year bond about a month ago.
The budget forecasts that Saskatchewan’s net debt is expected to fall to 18.8% of GDP from 19% previously, given “surging nominal output,” Kavcic noted. That’s about 2 percentage points above Alberta, for the second lowest net debt in Canada, he said. Net debt as a per cent of GDP is projected to be roughly 20% in subsequent years.
The bottom line is a sound one, Kavcic said: “Near-balanced budgets for the coming few years and a still relatively low net debt burden are supportive from a credit perspective.”