Manitoba

Manitoba will spend extra $3.2M to finance debt after interest rate bump

An increase of 25 basis points in Canada's prime lending rate will cost Manitoba approximately $3.2 million more to service its debt.

Finance minister concerned substantial rate increases could challenge provincial economy

The Bank of Canada's 0.25 per cent interest rate increase announced Wednesday means Manitoba will pay approximately $3.2 million more on the floating portion of the province's $23 billion debt. (CBC News )

A hike Wednesday in the Bank of Canada's key lending rate means Manitoba will pay more to service its provincial debt.

Progressive Conservative Finance Minister Cameron Friesen said the 0.25 per cent increase announced Wednesday in Ottawa was expected and was factored into Manitoba's fiscal planning for the year, but increases of one per cent or beyond could be harmful for the province.

The rate increase means the province will pay approximately $3.2 million more over the next nine months — the remainder of the fiscal year — on the floating portion of the province's $23-billion debt.

If the Bank of Canada introduced a series of hikes to one per cent, the $900-million costs for servicing both fixed and floating debt could rise as much as $83 million.

"Today's announcement continues to underscore the fact that results are necessary, that action is necessary. And I would want to make clear that our government takes this very seriously," Friesen told reporters.

Province hitting 'budgetary targets': Friesen

Friesen used the rate hike to highlight his government's ongoing fiscal austerity measures and take a swipe at former NDP governments for building up the province's debt and budget deficit. The PCs reduced Manitoba's deficit this year from $900 million to $840 million.

"We are hitting the budgetary targets that we are setting out. We know that we need to return our system to sustainability," Friesen said.

Finance Minister Cameron Friesen says future substantial rate increases could have a serious effect on Manitoba's economy. (CBC NEWS)

Friesen and his advisors are looking to next September, when the Bank of Canada makes its next statement.

Some economists predict the interest increase could be as much as one full percentage point.

"If that is the case it will have real implications for Manitobans. Those who have a mortgage that's floating, those who are applying for a mortgage at a higher rate [and] businesses that are undertaking to invest," Friesen said.

If the interest rate rose an extra per cent, the cost to service Manitoba's debt could rise into the $1-billion range. Friesen said a hike that large would be "outside the parameters of anything we had anticipated."

Credit rating reviews coming soon

Of further concern to Friesen and his government are credit-rating issues. Manitoba has received two credit rating downgrades in the past — one from Moody's in 2015, and one from S&P Global Ratings, previously known as Standard and Poor's, in 2016.

Both major rating agencies will release their analysis of Manitoba's fiscal health in the next few weeks.

When asked when the PC government's austerity program would start to show results with a decline in the deficit, Friesen said the impact was already starting to materialize and part of the effort was to trim back hundred of millions of dollars in promises made by the former government which the Tories have cancelled.

Friesen said his government is still committed to balancing the provincial books by the end of its second term.

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