Tom Osborne, Newfoundland and Labrador‘s finance minister, presented what has become a familiar tale of distress during his mid-year fiscal update in November: a deficit for 2017 of $852 million, up from an earlier estimate of $778 million. Oil prices have collapsed, resulting in declining offshore royalties from oil production and unemployment topping 15%.
On paper, 2018 looks a little better. The Atlantic Provinces Economic Council predicts that the Rock’s gross domestic product will shrink by 0.5% in 2018, which certainly would be an improvement over the previous year. This comparative good news may be deceptive, however, because it reflects oil production from the newly commissioned Hebron offshore oil project.
Unfortunately, unemployment is expected to creep upward as work on mega-projects such as the Muskrat Falls hydroelectric power project begins to wind down.
And not much good news is expected from the fishery, the province’s largest private-sector employer. Reduced catch limits on the high-value shrimp and crab species threaten the viability of rural communities that are struggling already.
There are some bright spots, led by Montreal-based Iron Ore Co. of Canada, which is expected to open a new pit at its Labrador West operation. That $79-million investment will keep the mine going for at least 12 years.
The province’s tourism industry is looking to build on a record year in 2017, thanks in part to the public relations success of the Broadway play, Come From Away. The tourism industry is also maturing, with destinations such as Gros Morne National Park, Fogo Island, the Bonavista Peninsula and towns south of St. John’s offering a better range of accommodations and visitor experiences.
A nascent robotics and information-technology sector also offers hope, with around 4,000 people employed within the province in this fast-growing sector.
But while the long-term prognosis for Newfoundland and Labrador may be positive, the next few years promise to be difficult. With the government running large deficits, Osborne is hinting at significant spending cuts.
Runaway cost overruns associated with building the Muskrat Falls infrastructure are partially to blame for the government’s woes. In 2017, it borrowed $137 million to pay for unplanned expenditures on the project. This brings costs to $12.7 billion, twice the $6.2 billion projected when the project was announced in 2010.
This shortfall is expected to result in a doubling of power bills for consumers in a province already burdened with a host of recent tax hikes and levies. Higher costs for electricity are expected to hit Newfoundland and Labrador particularly hard, given its rapidly growing population of retirees and shrinking base of working-age people.
Many residents in the province hope that recently discovered offshore oilfields will be exploited in the near future. If this happens, then the province will be given a second chance to diversify its economy and put a stop to the boom-and-bust cycle it has been unable to break so far.
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