Interest rate hikes are hitting N.L.'s treasury as the province tries to reduce its spending

·2 min read
Newfoundland and Labrador Finance Minister Siobhan Coady says rising interest rates are increasing the cost of borrowing at a time when the provincial government is trying to reduce spending.  (Darryl Murphy/CBC - image credit)
Newfoundland and Labrador Finance Minister Siobhan Coady says rising interest rates are increasing the cost of borrowing at a time when the provincial government is trying to reduce spending. (Darryl Murphy/CBC - image credit)
Darryl Murphy/CBC
Darryl Murphy/CBC

Newfoundland and Labrador's coffers aren't exempt from the impact of rising interest rates.

As rates rise, the costs of borrowing — about $2.7 billion this year for Newfoundland and Labrador — go up, a tough situation for a cash-strapped province trying to rein in spending and dig itself out of debt.

Finance Minister Siobhan Coady said Wednesday the province is monitoring the situation closely as it carries roughly $1.7 billion in short-term treasury bills, also known as T-bills, which generally carry one-month to three-month terms.

"That short-term interest rate is based on the overnight Bank of Canada rate," Coady said.

"So that's risen and of course that does have an impact on how much money we then have to pay back in interest."

Coady said some of the $2.7 billion will be borrowed in longer 30-, 10- and five-year terms. Those rates are based on the bond markets.

For example, the province borrowed $300 million in March at an interest rate of 2.05 per cent, until 2031. In July 1995, when the province borrowed $100 million, the rate was 9.15 per cent, expiring in 2025, had a rate of 9.15 per cent. In December 2020 the rate was 1.27 per cent.

As of Friday, a five-year term had a 3.7 per cent interest rate, a 10-year term had a four per cent interest rate, and a 30-year term had a 4.4 per cent rate.

In a statement to CBC News, the Department of Finance said about $2.4 billion remains to be borrowed for this fiscal year.

Quick rise

Coady said about $50 million was set aside in the 2022-23 budget to make room for market fluctuation but the government's main focus continues to be reducing its borrowing costs.

Still, she's looking on the bright side of things, comparing current trends with some from a decade ago.

"This is not a historic high or anything for interest rates. We've seen interest rates higher. If you go back 10 years ago, interest rates were higher than they are now," she said.

"Back in 2008-2009, for example, they were higher. Even a couple of years ago, for example, in 2019 interest rates were just under two per cent. So this is not, too, too high — it's just how quickly they've risen."

But Coady said there's still a concern, as higher rates affect households along with the provincial treasury.

She said the province is focusing on balancing the budget and bringing down the cost of paying off its debt, which costs about $1 billion a year in interest.

"Imagine if we had that billion dollars and we could reinvest in programs and services for the people of the province," Coady said.

Read more from CBC Newfoundland and Labrador

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