DBRS Confirms Province of New Brunswick at A (high) and R-1 (middle)

DBRS has today confirmed the long-term and short-term ratings for the Province of New Brunswick (the Province) at A (high) and R-1 (middle), respectively. The trends on both are Stable. Improvement in the Province’s debt profile has slowed in recent years following the steady progress that was made in the late 1990s and early 2000s. Since 2004-05, debt-to-GDP has only fallen slightly from 28.2% to 27.4% in 2007-08, while preliminary estimates indicate that the Province recorded a DBRS-adjusted deficit of $331 million in 2007-08 after three years of surpluses. However, GDP growth more than offset the associated increase in debt, allowing for a decline in the debt-to-GDP ratio.

The Province will rely on prudent fiscal management in the upcoming year to offset a challenging economic climate. Total revenues are forecast to grow a modest 2.9% and, when combined with an expected 0.9% increase in total spending, will allow for a decline in the DBRS-adjusted deficit to $200 million in 2008-09. Economic growth, while budgeted at a 1.8% pace, is expected to be near the national average. The Province will be dependent on further investment spending to provide support to the economy as high energy prices and a strong Canadian dollar will reduce the demand for manufacturing exports. This will see the debt-to-GDP ratio increase slightly to 27.5% in 2008-09, the fifth lowest of all provinces.

Despite slower improvement in recent years, New Brunswick’s credit profile remains solid, with future progress largely dependent on continued fiscal discipline and on how successful the Province will be with its plan to move toward self-sufficiency. As part of its plan, New Brunswick is considering significant tax reforms that could help stimulate employment and economic diversification. DBRS views this plan as an indication of forward-thinking management that could be positive for the Province’s credit profile if implemented in a fiscally responsible manner.

Note:
All figures are in Canadian dollars unless otherwise noted.