New Brunswick's healthy finances lead to strong credit improvement

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One of the world’s top credit rating agencies has raised New Brunswick’s credit worthiness to the second highest among provincial governments in Canada, another sign of its growing financial and economic might.

Moody’s Ratings has upgraded New Brunswick’s credit rating to Aa1 with a stable outlook from a rating of Aa2 with a positive outlook. That’s only one down from the top-class rating of Aaa, which both the British Columbia and federal governments have.

It has an impact right across the country.

Blaine Higgs

Premier Blaine Higgs, who’s presided over successive balanced budgets and historic population growth since coming to office in late 2018, was pumped by the news.

“There’s no debate,” the Progressive Conservative premier told reporters on Thursday at the legislature. “New Brunswick’s not going over the cliff, it’s actually stable, and with a positive outlook, that’s what the rating reflects. So it has an impact right across the country, looking at New Brunswick.”

Higgs’s reference was to the book Over the Cliff? Acting Now to Avoid New Brunswick’s Bankruptcy, by Richard Saillant, published in 2014, when the Moncton economist warned the provincial government was in deep financial trouble.

Higgs was finance minister at the time.

How the situation has changed.

“New Brunswick has been the only province to record consecutive balanced budgets over the past eight years and it’s the only province that continues to look at balanced budgets into the future,” said Michael Yake, a managing director at Moody’s in Toronto, in an interview on Thursday.

According to that eight-year timeline, the improvement began before Higgs took over, toward the middle of Liberal Brian Gallant’s tenure as premier.

The high rating reflects New Brunswick’s strong fiscal management, its improved debt burden but also its relative position not only to Canadian peers but global peers.

Michael Yake

But Yake gave kudos to Higgs and company for paying down debt.

“The high rating reflects New Brunswick’s strong fiscal management, its improved debt burden but also its relative position not only to Canadian peers but global peers as well.”

In a nine-page note released Tuesday, Moody’s forecast offered some figures for context.

It predicted the provincial government would keep its debt burden below 110 per cent of revenue over the next three to four years, one of the strongest levels among Canadian provinces. Strong debt management, it stated, would also ensure that the province’s interest expense did not increase above five per cent of revenue during that time. Such a feat would mean it would have the second lowest debt burden of any Canadian province.

Why does it matter?

Higgs explained that by paying down $2 billion in the province’s debt since coming to office five and half years ago and earning better credit ratings, his government had saved New Brunswickers $75 million in annual interest payments, money that can be re-directed to health, education or other public endeavours.

Besides getting lower interest rates for borrowing, the better credit rating should lure more investment in the province. Higgs pointed to what he called record levels of private sector investment over the last couple of years as evidence.

“We have a stable economy that allowed us to increase spending, like we’ve done in health care for example, but we haven’t raised taxes to achieve that,” the premier said. “First you get your economy right, first you get your revenue right, and then you say, ‘OK, without raising taxes and causing people more stress in their lives, we now have the ability to fund services at higher levels’.”

The only other province with Moody’s rating of Aa1 with a stable outlook is Saskatchewan.

B.C. is one better, with a rating of Aaa with a negative outlook, meaning it could be downgraded in the near future. Ottawa’s rating is Aaa with a stable outlook, the best of any large government in Canada.

Yake said even though New Brunswick’s economy continues to be below average for wealth generation and income in Canada, the concern Moody’s had a decade ago about the province’s demographics has disappeared.

“There was no population growth and an expectation the population would age and decrease,” the analyst said. “The strong immigration Canada has seen has benefited New Brunswick as well. The population has increased, the median age has fallen marginally, and that means there are more workers available. So not only is the population growing, which supports economic growth, but the people entering are active workers. That wouldn’t have been the case eight years ago.”

Moody’s is considered one of the Big Three of the world’s credit agencies. Another of the Big Three, Standard and Poor’s, recently reconfirmed New Brunswick’s credit rating as A+ with a positive outlook.

What it doesn’t talk about is social issues, only the fiscal issues. We’re not talking about housing, health or education.

René Legacy

The good news led to Finance Minister Ernie Steeves crowing in the legislature on Thursday, but Liberal Deputy Leader René Legacy was dismissive.

“Unfortunately, Moody’s only looks at fiscal issues in isolation,” Legacy said in the house. “What it doesn’t talk about is social issues, only the fiscal issues. We’re not talking about housing, health or education. And the problem with this government is there’s been tradeoffs, tradeoff for that fiscal health to get all those social issues not being taken care of.”

Glaring at the Tories across the aisle, the Liberal critic added, “these guys are taking the credit and New Brunswickers are paying the price.”