Amid rising government deficits, Morningstar DBRS revised its rating trend on the province of British Columbia to negative from stable.
In a report released Wednesday, DBRS confirmed its existing issuer and long-term debt ratings on the province at AA (high), but turned negative on the outlook for those ratings.
“The negative trends reflect Morningstar DBRS’ view that BC’s approach to fiscal management has been gradually deteriorating in recent years, as the government tolerates ever-increasing budget deficits and rising debt,” it said.
As a result, the province’s key financial metrics are weakening relative to the rating agency’s previous expectations and reducing “flexibility within the current credit ratings,” it noted.
The latest provincial budget anticipates ongoing deficits and increased borrowing, the report noted — with the projected deficit rising to $10.9 billion in 2025-2026, up from $9.1 billion, before easing slightly $10.2 billion and $9.8 billion, in the two years after that.
And, while the latest provincial budget is based on reasonable economic assumptions and includes large contingencies, “the province has yet to present a plan to turn around its fiscal and debt outlook,” DBRS said — adding that the budget also projects the debt-to-GDP ratio deteriorating beyond its previous expectations.
“The province has signalled that the next budget iteration will present a credible strategy to curb the rising debt, with efforts already underway to identify potential savings and revenue opportunities to support a path toward fiscal balance,” it noted.
In the meantime, the province’s ratings remain supported by its “strong balance sheet, past track record of outperformance and diverse economy,” the report said.