Saskatchewan’s credit rating downgraded

Saskatchewan’s credit rating took a dent on Thursday, just three days after its finance minister tabled a record $2.4-billion deficit budget.

DBRS Morningstar downgraded the province’s rating on longterm debt from AA to AA (low), though its vice-president for credit ratings, Paul Lebane, said the move doesn’t stem from the budget alone.

He said it reflects the impact of years of commodity pressures, with the COVID-19 crisis and deepened oil collapse adding to the risk.

NDP finance critic Trent Wotherspoon said the downgrade is important because it could lead to higher borrowing costs and reduce access to credit.

But Finance Minister Donna Harpauer said she does not believe that will be the case. According to Lebane, any impact would be marginal. Saskatchewan retains the second highest credit rating among Canadian provinces, after British Columbia.

“This is a very attractive credit to buy,” Lebane said. “This doesn’t change market access, and if it does change pricing, it would be awfully marginal.”

He said the world is awash in cash, and Saskatchewan won’t have trouble funding its debts.

“With all the stimulus in the world, it’s not like rates are going to jump because of this downgrade,” said Lebane.

But Wotherspoon said it’s a real concern what other credit agencies are going to do next. Moody’s issued a statement on Tuesday warning that risks had increased in light of the budget, which it said had “negative” credit implications.

Moody’s vice-president Adam Hardi said the deficit was higher than expected and that pressures on the province have increased. He said Saskatchewan will return to balance — the only question is how long it takes.

He said Moody’s is expecting a rebound starting in the second half of 2020.

“The province does retain significant fundamental strength,” he said. “But the stresses are more on the negative side now.”

DBRS also has “a great deal of confidence” that Saskatchewan’s government will return to balance over time, according to Lebane. But he was not as confident that it could do so over the next three or four years without raising taxes or making cuts. He said it takes time for provinces to recover from downturns — and Saskatchewan’s resource-based economy is more volatile than most.

“If you expect it to be a very strong recovery, perhaps that might be the case,” he said. “Realistically, it seems unlikely though.”

Harpauer has expressed considerable optimism the province can return to balance purely on the strength of its recovery, and has promised a plan to do so over roughly three to four years.

She did not accept Lebane’s assessment about the likelihood of that scenario.

“With due respect to his opinion, I think he’s underestimating Saskatchewan,” she said.

Saskatchewan’s budget has been meeting generally positive reviews in financial markets, with a Canadian banks noting that its debt remains among the lowest among the provinces compared to the size of its economy.

RBC said in a Tuesday web post that Saskatchewan “is weathering the storm from a position of relative strength.”

CIBC said the budget tabled on Monday would have “only modestly negative credit implications.”

Scotiabank agreed that Saskatchewan is in a comparatively strong position. But it also referred to the budget as a “placeholder fiscal plan” with little beyond “incremental adjustments.”

It said Monday’s budget “puts Saskatchewan on a more challenging financial path.”

“Wide deficits, larger debt loads, and more significant borrowing activity are presumably on deck,” it said.

This doesn’t change market access, and if it does change pricing, it would be awfully marginal.