DBRS Morningstar Confirms the Province of Manitoba at A (high) and R-1 (middle), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Long-Term Debt rating of the Province of Manitoba (Manitoba or the Province) at A (high) and confirmed the Province’s Short-Term Debt rating at R-1 (middle). DBRS Morningstar also confirmed The Manitoba Hydro-Electric Board’s Long-Term Obligations at A (high) and its Short-Term Obligations at R-1 (middle). All trends are Stable, supported by a well-diversified and resilient economy, increased focus on fiscal sustainability prior to the onset of the Coronavirus Disease (COVID-19) pandemic, and prudent debt management. These attributes provide the Province with ample flexibility to withstand the near-term fiscal pressures as Manitoba resumes the path to economic recovery.

The Province anticipates real GDP growth of 4.9% in 2021, followed by 3.7% in 2022. The improved outlook (compared with a deceleration of 4.8% in 2020) is mainly driven by accelerated vaccine rollouts, ongoing supports for households and businesses, economic reopening and faster recovery, and improving consumer sentiment. Financial performance deteriorated in F2021 because of an increase in expenditures related to the Province's coronavirus pandemic relief efforts and reduced revenues from broader economic weakness. Including capital expenditures and amortization, the DBRS Morningstar-adjusted deficit was $2.4 billion, or -3.4% of GDP.

Manitoba's medium-term forecasts now suggest a return to balance within eight years, yet deficits are projected to fall quickly. On a DBRS Morningstar-adjusted basis, deficits are likely to range between $500 million and roughly $900 million annually through F2025. Following the resignation of former Premier, Brian Pallister, Heather Stefanson was selected as the new leader of the Progressive Conservative Party and Premier. DBRS Morningstar will be looking ahead to the next budget for clarity and progress on Manitoba's priorities given the change in leadership.

Based on Manitoba's latest plans for debt-funded capital, the DBRS Morningstar-adjusted debt burden will gradually decline to around 43% over the medium term, after peaking at a little more than 47% in 2020–21. This is in line with DBRS Morningstar's previous expectations for debt.

RATING DRIVERS
DBRS Morningstar views the improvement in Manitoba's fiscal and debt outlook as favourable. Should the Province continue to demonstrate progress towards achieving a balanced budget on a sustained basis and a significant reduction in the provincial debt burden, this could lead to a positive rating action. A negative rating action could result from a sustained deterioration in the provincial economy and failure to stem chronic deficit spending and debt growth.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodologies are Rating Canadian Provincial and Territorial Governments (May 3, 2021; https://www.dbrsmorningstar.com/research/377881) and Global Methodology for Government Related Entities (March 8, 2021; https://www.dbrsmorningstar.com/research/374948), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrsmorningstar.com.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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