Standard & Poor’s Rating Services is downgrading New Brunswick’s credit rating over fears of its very high tax-supported debt and the long-term demographic trends facing the province.
But the rating agency says the Alward government is on the right track to turn the situation around.
Finance Minister Blaine Higgs announced the province's rating had dropped to AA-minus from A-plus in the legislative assembly on Friday.
"I am disappointed in this decision, but I am not surprised," Higgs told the legislature.
"But when you run up the sort of debt the previous government did you don’t just turn that around overnight and you can’t just pay that off overnight. Today, we see that years of overspending are continuing to hurt New Brunswick’s future."
The rating downgrade means New Brunswick is seen as more of a risk and could result in banks charging the provincial government a higher interest rate when it borrows money.
'We have taken a balanced approach and tried to avoid the riots in the streets. This is a message to us and a message to the public that we may need to go farther.'—Finance Minister Blaine Higgs
"We've met with a number of institutions over the last — well, since the beginning, really, talked to them about our programs, understanding where we're moving, and a number of initiatives we have in place," said Higgs.
"I'm not getting any anxiety levels in that world. So I'm not looking for it to have an impact, but we'll have to see how the markets react to it," he said.
Mario Angastiniotis, a credit an analyst for Standard and Poor’s, faulted the rising debt costs for the downgrade.
"The downgrade reflects our opinion of the province's rapid increase in its tax-supported debt as a percent of consolidated operating revenues to a record level of more than 150 per cent in the next two fiscal years and large near-term after-capital deficits that we expect to improve gradually," Angastiniotis said in a statement.
But he believes the provincial government will hit its target of a balanced budget by 2014.
Still, the Finance minister said he may need to accelerate the spending cuts he's making.
"We have taken a balanced approach and tried to avoid the riots in the streets. This is a message to us and a message to the public that we may need to go farther," he said.
Higgs outlined in his March budget the province’s debt is expected to increase by $738.9 million, which will push the existing debt towards $11 billion. The debt is expected to hit $10.1 billion after 2011-12 finishes.
Stay the course
Angastiniotis contends deeper cuts may actually hurt the economy. He's urging Higgs to simply stay the course.
"Effectively what they've done to date and what they're planning to do probably will do the trick. It's just going to take time," he said.
Once the deficit is eliminated, Angastiniotis and Higgs agree it will be important to maintain fiscal discipline and start paying down the province's debt.
In its decision to downgrade the credit rating, the agency also cited the "challenges stemming from long-term demographic trends that are likely to affect health care demand and revenue growth."
Premier David Alward told a public meeting in January the province's fiscal crisis and its aging population are two issues that keep him awake at night.
When Alward announced pension changed last week, he again pointed to the province's aging population as a need for the policy change.
"To put it simply, our pension system was designed in a time when people worked longer and lived shorter lives," Alward said on May 31.