Ball’s $2.7-B borrowing problem

Premier says government can’t get long-term borrowing in the amounts it needs

James McLeod jmcleod@thetelegram.com
Published on February 24, 2016
Telegram file photo
Premier Dwight Ball

The provincial government has racked up nearly $2 billion in short-term treasury bill debt in less than a year.

And in an interview with The Telegram, Premier Dwight Ball said the province could not get the kind of money it needs from long-term lenders if it tried.

Ball was elaborating on earlier comments he made regarding long-term borrowing, and the precarious financial position of the province.

“We have no indication, where we are today, that there is any domestic market right now that would actually fund 100 per cent of our borrowing needs,” Ball said.

“Based on the temperature right now, we have not seen an appetite for anyone in the domestic market to take on the borrowing needs that we need as a province, based on where we are today.”

This year, the government is running a $2-billion deficit, in addition to a record deficit last year, and more red ink is forecast for the next five years.

Faced with all of that, Ball said it’s been tough to get anybody to lend the government money long term, and most of the province’s spending has been fuelled by short-term 60- and 90-day treasury bills.

Since the November provincial election, the government has taken out one loan for $235 million for three years at an interest rate of 1.1 per cent, and another 31-year loan for $300 million at an interest rate of 3.3 per cent.

But that combined $535 million is small compared to more than $2-billion worth of borrowing Ball said he expects the government will need to do during the next couple of years.

And, he said, before lenders give the government any money long term, they want to see the Liberals’ budget.

“The question will always be, ‘What are you going to do about your current situation?’” he said.

“The reaction will be much more positive if we have a plan that we can show them.”

At the beginning of the fiscal year in April 2015, the provincial government had about $780 million in debt in short-term treasury bills — typically 60- and 90-day loans.

By Oct. 1, the short-term treasury bill debt was up to $1.1 billion. By Dec. 1, the day after the Liberals won the provincial election, the short-term debt was $1.9 billion.

Today, the short-term treasury bill debt is $2.7 billion.

Ball said the short-term loans don’t actually cost the government more than long-term borrowing.

In fact, the average annualized interest rate for the short-term treasury bills is 0.643 per cent, lower than the interest rates being charged for those big long-term loans.

Ball said the issue with the short-term money is that it’s risky.

“My issue is not really just the cost of short-term borrowing versus long-term borrowing. Its the exposure that you get if you do not put in place the long-term borrowing strategy,” he said. “In a particular short time frame, you can get cheap money, but with that cheap money comes exposure to rating changes.”

Ball said the key is developing relationships with lenders, which is something the previous government never did. For years, because of high oil prices and huge royalty revenues, the previous government didn’t need to do any borrowing.

“The investor relations strategy is key to all of this, and, as I said, we had not been in the market seven years prior to this, so in a lot of ways, there are introductions that will have to be done,” he said.

“They are looking for this budget, there’s no doubt about it. They are looking for a credible plan, with targets, and then the determination on what level of lending they will engage with this province.”