Credit rating agency gives Manitoba's economy a thumbs up

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Credit rating agency gives Manitoba's economy a thumbs up

An international credit rating agency says Manitoba's economy is growing, diverse and poised to be one of the strongest in Canada over the next two years, but that's not enough to satisfy Finance Minister Cameron Friesen, who says Manitoba isn't out of the woods just yet.

At the request of the provincial government, Moody's Investors Service quietly released a short-term credit rating for Manitoba on Feb. 21, giving the province a Prime-1 rating — the highest short-term designation from the bond-rating agency. 

Moody's touted Manitoba's strong fiscal framework and the presence of sizeable liquidity sources as reasons for the top rating.

However, Friesen said Manitoba is staring down a $1-billion deficit and the province's fiscal state is still cause for alarm.

"I think that the alarm we are sounding is the one we have heard over the last few weeks: that increased debt and deficits are a real threat to provinces," Friesen told CBC News.

"Remember, we are doing better than other provinces because of significant downturns in other other provinces. We are not exactly the belle of the ball."

PCs wanted bad news, NDP suggests

Moody's typically offers a long-term rating every summer, but Friesen said the government asked for a short-term rating  — which looks at a province's ability within the next 12 months to repay its debts — to "get another opinion."

The Opposition NDP doesn't think that is the case.

Finance Critic James Allum suggests the request was a failed ploy by the government to pile on more bad news for Manitobans ahead of the April 11 release of an austerity budget.

"I think they were quite clearly hoping the news from Moody's was going to be bad to justify this austerity program they have in mind," Allum said.

"But I am glad they did [get the rating] in the sense that it demonstrates quite clearly the province is in a stable economic situation, not in some kind of economic crisis that results in the kind of cuts the finance minister has in store for Manitoba."

Moody's famously downgraded the province's credit rating in 2015, citing the NDP government's struggle to contain the provincial deficit.

Downgrades typically lead to increased borrowing costs. Premier Brian Pallister is quick to remind Manitobans payments to lenders because of those downgrades are equivalent to "sending a hospital to Toronto every year."

S&P Global Ratings downgraded Manitoba's credit rating last July, citing its growing debt burden.

Long-term rating remains stable

Following the release of the short-term rating, Moody's offered an updated credit opinion on the province's long-term rating. The rating remained stable, citing Manitoba's strong economic performance and outlook.

"Manitoba's Aa2 rating is supported by the strength and diversity of its economy, which produces low unemployment rates and real GDP [gross domestic product] growth rates above the Canadian average. Manitoba continues to benefit from strong debt affordability," states the credit opinion released Feb. 24.

The rating — Moody's third-highest long-term rating, but lower than the Aa1 rating the province had before the 2015 downgrade — is a sign the province is on the "road to recovery," Friesen said.

"It suggests to me they are seeing the evidence of fiscal discipline."

Allum argues the former NDP government should get some credit for the current economic performance, which the Tories inherited less than a year ago. 

"If the finance minister, as the premier does, always wants to blame us for everything, then they have to give us credit for the performance of the economy under difficult circumstances," said Allum.

Adam Hardi, an assistant vice-president and analyst at Moody's, said while Manitoba's deficit is concerning, that is countered by the province's ability to raise taxes or liquify assets if needed, coupled with a strong economy.

"[The deficit] will be supported by a fairly robust economy within the Canadian/provincial landscape," he said, adding Manitoba is forecast to be a growth leader in Canada.

"We do expect that revenues will be stable and improving given it is expected to have a robust GDP."

Hardi said it would take years for Moody's to downgrade the province any further. Only one province, Newfoundland and Labrador, is in the lower Aa3 category.

"There is still breathing room within the double-a2 category — the progression we typically like is to go gradually," he said, noting there would be a negative outlook first before a downgrade.