Minister of Finance Katrine Conroy tables her first budget as Premier David Eby looks on in the legislative assembly at legislature in Victoria, on Feb. 28.CHAD HIPOLITO/The Canadian Press
British Columbia’s credit rating has been downgraded on the heels of its latest deficit-spending budget.
The provincial government tabled a $4.2-billion deficit in February, prompting the bond rating agency S&P Global to trim the province’s rating from AA+ and stable to AA with a negative outlook.
The S&P decision is in contrast to a rating delivered by another agency, Fitch, which last week maintained its ranking for British Columbia. Every downgrade means the province has to pay more for its borrowing.
Last November, B.C. was forecasting a $5.7-billion surplus for the fiscal year that ended in March. That triggered fast-paced spending as Premier David Eby’s New Democratic Party government aimed to disperse the surplus that would otherwise be reserved for paying down the debt.
The province then embarked on a new fiscal plan that included record levels of spending.
“With the release of the current budget, we believe that the province’s commitment to fiscal discipline and stability has waned,” S&P’s analysts wrote in the report dated April 18.
Jock Finlayson, senior policy adviser for the Business Council of B.C., said even that mildly worded reproof will have repercussions for the province.
“That’s actually pretty strong language from these guys,” he said in an interview. “When jurisdictions enter the world of downgrades, it can set off a bit of a cascade. So this is perhaps a bit of a wake-up call to the government to be cautious going forward.”
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The province was last downgraded after its early pandemic spending, but has generally maintained a top credit rating for more than a decade. B.C. still has the best credit rating overall among provinces.
The latest spending plan unravels the province’s strong gains in recovering from the initial costs of the pandemic, S&P noted. While many local and regional governments around the globe took a hit at the start of the pandemic, B.C. rebounded quickly.
“Strong economic performance has allowed the government of B.C. to increase spending and implement a tax-affordability mandate that was sustained over the past five years,” the report says.
“In fiscal years 2022 and 2023, B.C. outperformed its economic growth and fiscal forecasts and we expected that, like other domestic peers, it would use this windfall to mitigate debt issuance in future years.”
It did not.
Finance Minister Katrine Conroy could not be reached for an interview. In a written statement, she defended the province’s spending choices.
“As S&P notes, we have continued to make record capital investments and they point to those investments as part of the change in outlook. We are proud to have made choices to help people by delivering the services and infrastructure they need, after the old government left a legacy of infrastructure deficits which are being felt by communities across B.C.”
S&P is the second bond rating agency to weigh in on the province’s fiscal plan, and two others are expected in the coming weeks. On April 4, Fitch Ratings maintained the province’s AA+ rating with a stable outlook.
Analysts for Fitch predicted that B.C. will weather the rough economic road ahead.
“Current uncertainties, including a housing-market price correction and a rising likelihood of recession, are expected to weigh on revenue growth even as spending for operating and capital needs rise, leading to higher reliance on borrowing,” the agency wrote.
Despite those risks, the provincial budget “is cushioned by conservative assumptions and sizable contingencies. The province remains positioned for strong growth and has a history of quickly addressing fiscal challenges.”