P.E.I. Auditor General Darren Noonan is raising concerns over the sustainability of the province's finances — suggesting services could eventually be affected if the province doesn't improve its bottom line.
The provincial government has projected P.E.I.'s net debt will reach $2.9 billion by March 31, 2025. As of March 31, 2021, it stood at $2.3 billion.
In a presentation to MLAs on the province's Public Accounts committee Tuesday, Noonan noted that in the 2020-21 fiscal year P.E.I.'s net debt grew faster than the economy and faster than the population — even though P.E.I. has shown some of the strongest economic growth in the country in recent years and led all provinces in population growth between the 2016 and 2021 census counts.
"Increasing debt levels and rising interest rates should be a concern," Noonan told MLAs.
"Not that it has a big impact on today, but in 20 to 30 years, it's going to have a huge impact on the situation."
Each P.E.I. resident's share of the province's debt grew by $325 in the 2020-21 fiscal year to $13,993, marking the second consecutive year of growth.
In 20 to 30 years, it's going to have a huge impact on the situation. — Darren Noonan
In his most recent annual report, Noonan called that "a negative and worrying trend."
Yet the same report shows P.E.I.'s per capita debt and debt-to-GDP ratio remain the lowest of any province east of Saskatchewan — a fact that bodes well for provincial finances, compared to most Canadian jurisdictions.
On March 1, the bond rating agency DBRS Morningstar noted P.E.I.'s rising debt but said it "appears manageable, though it remains contingent upon sustained economic growth and deficit elimination over the next few years."
In its most recent forecast, TD noted that P.E.I.'s inflation rate, the highest in the country, would "eat into real incomes and likely slow consumption in coming quarters."
'Striving to achieve a balance'
CBC News asked for an interview with Finance Minister Darlene Compton to discuss Noonan's warning on Tuesday.
She wasn't made available, but the Department of Finance sent a statement.
"Over the past two years, going through a global pandemic and subsequently facing global inflationary pressures have resulted in an unanticipated need for increased spending and investment to support Islanders and our provincial economy," the statement reads.
"The Department of Finance is always striving to achieve a balance of approving funds to support those most in need, while also working with qualified professionals so that our provincial economy is able to continue to support Islanders as well as ensuring fiscal responsibility moving forward."
Services to suffer eventually?
P.E.I. is projecting a budget deficit of $92.9 million in the current fiscal year. But the Dennis King government, just like the Wade MacLauchlan government before it, has a history of significantly overestimating budget deficits, while underestimating expected surpluses.
The deficit for 2020-21 was originally pegged at $173 million. Thanks in part to federal COVID-19 funding, the actual deficit came in at a modest $5.6 million.
But with interest rates now rising and federal transfers expected to fall after a pandemic boost, Noonan told MLAs the province could soon struggle to maintain its current level of services.
"Health-care facilities, long-term care facilities, social housing — the demands on additional spending [are] going to continue," Noonan said. "It's going to become a burden, I believe."
P.E.I. budgeted $131 million in the current fiscal year for interest payments against its debt.
An increase of one percentage point in the interest rate the province pays to service its debt would push that cost up significant;y, said Noonan. On a debt of $2 billion, it would mean interest payments of an extra $20 million a year; with P.E.I. debt at $2.3 billion, the extra percentage point would mean $23 million more per year.
In its statement, the Department of Finance said staff "are always keeping an eye on actual maturity schedules to ensure that we are not exposed to spikes in interest rates for a majority of the debt."
Noonan said his office is preparing a special report on the sustainability of government finances, which he said could be released in the spring of 2023.