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Newfoundland and Labrador was warned Wednesday of a need for the province to mind its budgets and address rising debt, as S&P Global Ratings revised the province’s credit outlook from “stable” to “negative.”
Credit outlooks are not changes in the credit rating. They set out a rating agency’s general view for the coming years. The change warns of a higher potential for a credit rating downgrade for the province, without action.
A downgrade means higher borrowing costs. The province would essentially be paying more over time to have what it needs in hand for everything from funding new schools to health-care staffing. That’s ultimately a higher overall cost for the same level of infrastructure and services.
“It’s a very, very direct warning,” economics professor Pierre-Marcel Desjardins told Radio-Canada after the issuance Wednesday.
S&P stated the outlook reflects an expectation of challenged finances even with healthy economic activity. The Progressive Conservative government is paying more for things like health-care services. It’s also added spending to meet election commitments that the public treasury has to cover over time and adding to an already high debt load.
S&P stated it sees tax-supported debt growing to more than 300 per cent of operating revenues by 2029.
WATCH | ‘This is a warning shot,’ says financial advisor Larry Short:
Credit rating agency says N.L. needs to improve its finances
The government of Newfoundland and Labrador is being warned to get its fiscal house in order and attend to its spending levels and debt, if it wants to avoid a decrease to its credit rating. Carolyn Stokes reports.
Desjardins said it isn’t a case of the rating agency directing the provincial government to make cuts to staff or services. However, there is a clear call to slow the growth in debt and set out a plan to at least start approaching balanced budgets.
“You’ve got to show a clear path, a clear strategy of how you’re going to improve the province’s … financial situation over the next few years,” Desjardins said, on avoiding a downgrade.
Pressure for hydro deal
Even if Newfoundland and Labrador signs on to an agreement with Quebec on Churchill River power in the coming months — bringing significant cash for the public treasury and new power for economic development — it does not do away with the financial concerns.
Then again, the pressure for a credit rating downgrade runs even higher without a deal.
“The pressure is very high,” financial analyst Larry Short told CBC News.
“They’ve kind of painted themselves in a bit of a corner politically, but also now it’s another feather in the hat for the government of Quebec saying: you’re under more pressure now than you were last week.”
The outlook did note, if the government is effective in keeping spending in check and works toward balance for provincial budgets, rather than adding more debt, the rating could improve.
A hydro deal with Quebec could also contribute to a stable outlook.
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