Manitoba's budget cited as 'aspiration without action' by credit rating agency

Manitoba's budget cited as 'aspiration without action' by credit rating agency

Two international bond rating agencies released comment Wednesday on the Progressive Conservatives' second budget and it is fair to say the reviews are mixed.

Moody's Investors Services and DBRS both cautioned against a lengthy return to balance and increased borrowing costs. However, DBRS went one step further and slammed the budget, calling it "aspiration without action."

"The budget does not make drastic changes but rather points to a slow return to balance founded on the assumption that the government can constrain spending growth to less than revenue growth," said DBRS in a release issued Wednesday.

The agency said the budget released Tuesday lacked the follow through set up by the Tories over the past few months. Instead, it offered a similar cautious approach seen in the 2016 budget, it noted.

"In the months leading up to the budget, government messaging suggested that more aggressive measures might be forthcoming, but these were largely absent from Tuesday's budget," it stated.

"The budget did not include any substantive revenue measures, nor did it include any significant reductions in program spending."

It noted government plans to review program spending appeared to have limited impact on the budget.

Tuesday's budget forecasts a $840 million summary deficit this fiscal year, down $32 million from the previous year. The Tories plan to reduce that figure to $549 million by 2019-20.

​Premier Brian Pallister said on Tuesday the budget represented a balanced approach and his government wasn't elected to make deep cuts. 

 "That wasn't the solution we chose and it wasn't the solution we ran on," he said. "What we did today was balance the importance of getting to balance with the need to protect the services Manitobans count on."

Moody's welcomes plan to chip away at deficit

Moody's, which slammed the Progressive Conservatives' maiden budget in 2016, has given its second try a partial thumbs up.

Moody's Investors Service applauded the government's plan to "chip away" at the deficit over the next three years. However, it cautioned that the province's debt accumulation continues to rise, pointing out that debt servicing costs will rise to nearly $1 billion in 2017-18, a figure which eats up six per cent of the government's revenue. 

"The 2017 Budget presents a multi-year forecast which is a welcome adjustment from last year's single year outlook, given the province's lengthy expectation of returning to balance over two government mandates," said Adam Hardi, Moody's assistant vice president in a release issued Wednesday.

"The incremental improvements year-over-year are modest and will require tight expenditure controls to contain the increase in debt. The prolonged deficits and the province's capital spending requirements will keep the debt burden elevated which will remain a source of credit pressure for Manitoba."

Tuesday's budget forecasts a $840 million summary deficit this fiscal year. The Tories plan to reduce that figure to $549 million by 2019-20.

Moody's release on Wednesday presents a far more optimistic tone from the credit rating agency than seen in previous years. When the Tories released their first budget just over a month after being elected, Moody's slammed the new government for its eight-year plan to return to balance and deficit forecast of $1 billion.

Its headline in 2016 was, "Manitoba's 2016/17 Budget Offers Weak Fiscal Outlook."

In contrast, Wednesday's release was titled, "Manitoba's 2017 Budget Presents Cautious Recovery Plan."

The former NDP government's last budget, released in 2015, was panned by the agency, saying, "Manitoba's budget shows reduced willingness to return to balance."

A month later, Moody's downgraded Manitoba's credit rating to Aa2 from Aa1. DBRS has not downgraded the province's credit rating.

Moody's noted in Wednesday's release that Manitoba continues to show strong signs of growth in GDP, bolstered by low unemployment rates.

"The budget forecasts real GDP growth rates of 2 per cent in both 2017 and 2018, fuelled by manufacturing and retail sales growth, steady U.S. demand and continued weakness in the Canadian dollar which favourably impacts exports. Manitoba's unemployment rate, forecasted to average 6 per cent over the next two years, will remain one of the lowest among provincial peers," read the conclusion of the release.