Moody’s has lowered Newfoundland and Labrador’s credit rating but improved the economic outlook from negative to stable. However, it also says the province’s plans to reduce spending is ambitious.
The Baseline Credit Assessment drops to a3 from a2, and its long-term senior unsecured debt rating drops to Aa3 from A1.
The two downgrades reflect NL’s elevated debt and interest burdens, and the heightened credit risk stemming from the large debt level and weak financial metrics of Nalcor.
Moody’s expects our debt burden to continue to rise in the near term, peaking at 257 per cent of revenue in 2021 before stabilizing at around 250 per cent by 2022, up from the expected 227 per cent as of March 31, 2019.
Newfoundland and Labrador records the highest interest expense among Canadian provinces, 12.8 per cent of revenue, which is expected to rise to 14.9 per cent by 2022.
The agency is also concerned about rate mitigation, saying that either government will provide financial support to Nalcor or electricity rates would rise significantly.
The province’s current budget path of a return to balancing the books by 2022/23 banks on expenditures falling by 7.3 per cent. However, expenditures have actually been growing by almost one per cent per year on average.