BC's borrowing leads to its third downgrade in three years, now rated AA- with a negative outlook
British Columbia's credit rating was downgraded to AA- by S&P Global Ratings, marking the province's third reduction in three years, as reported by the Financial Post.
The downgrade comes with a negative outlook, with the ratings firm indicating potential for further decline within the next two years if BC continues its current fiscal path.
This development occurs as the province, the third largest in Canada by population, plans to increase its borrowing.
In a statement made in February, the BC government forecasted a record deficit of nearly $8bn for the fiscal year 2024-25.
This announcement was part of the government's intention to boost spending on infrastructure, health care, and education in anticipation of the provincial election scheduled for October 19.
S&P Global Ratings expressed concerns about BC's fiscal health, predicting a “material deterioration in the next two years.” The province is expected to exhibit operating deficits exceeding five per cent of its operating revenue, with after-capital deficits reaching around 20 per cent of total revenue.
According to S&P, this positions BC's budgetary performance as the weakest among its domestic and international peers.
Meanwhile, Moody's Investors Service has maintained its highest rating for BC, Aaa, since 2006, citing federal government support for Canadian provinces.
However, Moody's recently adjusted its outlook for the province to negative, pointing to the continued allowance of significant deficits and rising debt levels as indicators of weakened governance risk controls and financial management.
Fitch Ratings, on the other hand, has maintained BC's rating at AA+ since 2021, as per Bloomberg data.
In response to the downgrade, Finance Minister Katrine Conroy emphasized BC's strong standing among provinces regarding credit ratings, economic leadership, job and wage growth, and low unemployment rates.
She highlighted the province's favorable debt-to-GDP ratio and low interest costs.
The downgrade has sparked political debate, with the opposition BC United Party (formerly the BC Liberal Party) attributing the negative shift to what it describes as “reckless spending” by the New Democratic Party-led government under Premier David Eby.
Despite the downgrade, BC's new AA- rating by S&P remains competitive, especially when compared to other major Canadian provinces like Quebec, Alberta, Ontario, Manitoba, and Saskatchewan, highlighting a mixed fiscal landscape within the country.
