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08 Feb 2017
Toronto, February 08, 2017 -- Moody's Investors Service noted that New Brunswick continues to
progress towards balanced budgets following the release of the province's
2017/18 Budget. Moody's also noted, however,
that the higher than previously anticipated spending in the budget indicates
that risks remain within the province's plan to return to balanced
"Although New Brunswick continues to be in a lengthy period of deficits,
the progress in reducing the size of deficits is positive for the province.
This is not, however, translating to an improvement in the
province's debt burden", noted Michael Yake, Moody's
The province is forecasting a deficit of CAD191.9 million in 2017/18
(2.1% of revenue). This follows the recent announcement
from the province that the deficit for 2016/17 is estimated to be CAD231.1
million (2.6% of revenue), a modest improvement over
the originally budget deficit of CAD247.0 million (2.8%
of revenues). New Brunswick continues to target a return to balanced
budgets for 2020/21.
"The challenge for the province to achieve balanced budgets continues
to be in the medium-term, especially 2019/20 when the province
forecasts annual expenditure growth of only 0.6%",
added Mr. Yake. Moody's had previously noted that
the province's ability to achieve its targeted multi-year
expenditure restraint was important for its plan to return to balanced
In contrast to the Budget's medium-term plans on reducing
expenditure growth, Budget 2017/18 calls for strong increases in
expenditures. Overall, total spending is expected to increase
3.6% over updated 2016/17 levels, which themselves
are 1% higher than original budgeted levels. Important program
increases are forecasted for Education and Early Childhood Development
(4.6%), Health (2.5%) and Post-Secondary
Education, Training and Labour (1.2%) which combined
account for slightly more than 50% of program spending.
To support this higher spending, revenues are forecasted to grow
4.1% in 2017/18. This includes the impact of a full
year of revenue stemming from the 2 percentage point increase to the province's
sales tax effective July 1, 2016. This follows a forecasted
growth in revenues of 5.2% for 2016/17. If achieved,
these would result in the strongest back-to-back revenue
growth since 2010/11-2011/12.
With no new revenue measures introduced for 2017/18, the province's
revenue growth will be linked to growth in federal transfers, ongoing
impact of previous measures and sources tied to economic activity including
income taxes and consumption-based taxes. New Brunswick
forecasts a slight improvement in real GDP growth: 0.6%
in 2017 compared to 0.4% estimated for 2016. The
province's economy, however, continues to perform below
the national average for Canada. Moody's forecasts growth
of 1.9% in 2017 for Canada's real GDP.
The province previously released their planned capital spending for 2017/18
which calls for CAD775.6 million to be spent in infrastructure
across the province. This is a 22.9% increase from
the expected spending of CAD631.1 million in 2016/17 and is also
CAD79.3 million higher than the previous plan for infrastructure
spending in 2017/18. The province indicated that they are seeking
to leverage new infrastructure funding provided by the federal government.
To fund the deficit and capital plan, the province's debt
is expected to increase CAD362.1 million in the year. Given
the stronger than previously anticipated revenues, Moody's
notes that this will have only a marginal impact on the province's
debt burden, which the rating agency continues to forecast will
equal roughly 155-160% of revenues across the medium-term,
unchanged from last year's forecast.
As part of its normal monitoring process, Moody's will carefully
evaluate the 2017/18 budget's assumption and its potential for upside
and downside risks and likely impacts on the province's debt burden,
fiscal situation and liquidity profile.
This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
ratings tab on the issuer/entity page on www.moodys.com
for the most updated credit rating action information and rating history.
Vice President - Senior Analyst
Moody's Canada Inc.
70 York Street
Toronto, ON M5J 1S9
MD - Sub-Sovereigns
JOURNALISTS: 44 20 7772 5456
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Moody's Canada Inc.
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Toronto, ON M5J 1S9
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