Increased deficit a ‘setback’: credit rating agency

One of the province’s credit rating agencies says the government needs to focus on reducing spending to avoid any future credit downgrades.

Travis Shaw, vice-president of public finance with DBRS, says an increased deficit to almost $1 billion is a setback.

“What happens with resource prices and production is, to a large extent, beyond their control. We continue to be focused on the medium-term plan and the government’s efforts to get back to balance, so we’ll be looking to see what impact this has going forward on that trajectory,” said Shaw.

“Obviously, over the last number of years, we’ve seen fairly considerable progress in bringing down the deficit. This is certainly a setback, but I don’t get the sense this in any way changes government’s desire, willingness to continue to gradually claw back to balance.”

DBRS currently rate’s the province’s credit rating — a measurement that helps determine the cost of borrowing — at A-low, with a stable outlook.

The government will spend $1.4 billion on its debt in 2019-20 — the second-highest expense of government. Debt servicing costs as much as K-12 and post-secondary education combined.

As it stands, Shaw says he doesn’t believe any further rating decrease is imminent.

Overall, Shaw says the government has followed it debt-reduction strategy since 2016.

“Since this recovery plan was announced, government has largely met or somewhat exceeded targets in some years, which has helped to build some flexibility there,” he said.

As for whether or not now is a time of doom and gloom for the province’s fiscal future, Shaw says all is not lost.

“I don’t want to discount the challenges that Newfoundlsnd and Labrador face — they are quite significant on the economic and fiscal front. That being said, there needs to be recognition given to the work that’s taken place thus far,” he said.

“These haven’t been easy decisions. We’ve seen a wide swath of tax increases in the initial budget for this government, to a fairly concerted effort to constrain spending on a year-to-year basis thereafter. That is going to pay some dividends down the road, but obviously with the update and this further setback, there’s still a fair bit of difficult work that lies ahead of the province.”