Moody’s credit rating agency has downgraded B.C. a notch, blaming “entrenched deficits” and a “deterioration in long-term fiscal management.”
The Thursday (March 19) decision is the agency’s second downgrade for the province in two years, lowering B.C. to Aa2, or two notches below the top Aaa status. These credit rating decisions signal to investors that the province is a riskier place to lend money to, which, in turn, may cause B.C.’s borrowing costs to rise.
An Aa2 rating is still within the category of “high quality” and “subject to very low credit risk.” But Moody’s says its Baseline Credit Assessment for the province is actually a notch lower at A1 and is only boosted a level because the overall rating takes into account presumed backing from the federal government, which is Aaa stable, the highest rating possible.
The Finance Ministry defended the province’s fiscal position, pointing out that B.C. remains one of the top-rated Canadian provinces. Finance Minister Brenda Bailey says the province is continuing to work toward positioning itself as an “economic engine” of Canada.
“It is challenging times for everyone across Canada, and we’re taking disciplined steps to ensure B.C.’s fiscal sustainability for the long term, while protecting important services people rely on, and diversifying our trading relationships,” Bailey said in an emailed statement.
Moody’s dissects the outlook for B.C. in its ratings decision, breaking down the latest budget, which includes deficits of $13.3 billion this year, $12.2 billion the next and $11.4 billion the year after. Meanwhile, the agency says there is a “lack of an articulated timeline” to return to balance, indicating that deficits could continue beyond the three-year fiscal plan.
And debt is expected to soar, sharply increasing the burden of borrowing costs on the province’s books. Moody’s projects provincial debt to increase to $178.5 billion by the end of this fiscal year and to $230 billion by the end of 2028/29.
This has shifted B.C. from having one of the lowest debt burdens among regional peers to having one of the highest, according to Moody’s.
Despite this, the province continues to borrow to finance capital projects, planning to spend $52.9 billion on provincial and Crown corporation projects over the next three years.
One bright spot is that Moody’s says British Columbia has a more diversified trade portfolio than many other provinces, which means a reduced reliance on trade with the United States and, consequently, a better ability to weather trade uncertainty caused by U.S. President Donald Trump.
There is a caveat, though, that several key exports, such as natural gas, electricity and lumber, are all heavily reliant on trade with the U.S.
Premier David Eby, speaking to reporters in Surrey on Thursday, said the choice the government made was to keep spending to boost the economy and deliver services through an “incredibly challenging year” of trade pressure and increasing health-care costs.
“We made a very clear choice,” Eby said. “We’re prioritizing British Columbians. We’re prioritizing growing the economy.”
Interim B.C. Conservative Leader Trevor Halford says the NDP government has increased spending but is still failing to provide better services.
“I think it’s critical that British Columbians ask the NDP, ‘How is it that they are spending more and that we have the largest deficit in the history of our province, yet our level of service from this province is at an all-time low?’” Halford said.
He says it is clear the government has “maxed out the provincial credit card” and allowed ministries to become overloaded with bureaucracy.
“This NDP government has completely bloated itself to a point where it’s unrecognizable,” Halford said.