A prominent credit ratings agency has maintained P.E.I. at an “A” rating.
DBRS Morningstar confirmed P.E.I.’s issuer rating, as well as its long-term debt rating, at “A”. The rating means the provincial government maintains a good credit quality and has capacity to pay financial obligations. The confirmation comes after the province’s most recent budget, which included a $173-million deficit.
The 2020-2021 budget deficit is the largest in the province’s history and was largely the result of program spending and altered revenue projections due to the COVID-19 pandemic.
In a statement, DBRS said the economy is expected to shrink by 5.1 per cent in 2020, while unemployment is expected to rise to 10.2 per cent.
“The province presented a high-level, multi-year budget outlook which envisions a multi-year effort to balance the budget,” DBRS said in a statement.
“With few details contained in the budget, the outlook suggests that the province will take a similar approach to balancing the budget as it did after the financial crisis (i.e., constrain spending growth to less than revenue growth).”
P.E.I. was upgraded to an “A” rating by the credit agency in August from A (low) due to the province’s positive economic outlook at the time.
New Brunswick currently has an A (high) rating, while Newfoundland and Labrador is rated at A (low). DBRS Morningstar has not delivered a rating for Nova Scotia since the beginning of the pandemic.
In order for a province to see a downgrade to its credit rating, the province would need to demonstrate “persistent economic weakness,” large deficits and further deterioration of its debt-to-GDP ratio.
A June analysis of P.E.I.’s provincial budget by the National Bank of Canada noted that the province’s credit rating with Standard and Poors is A, Stable while its rating with Moody’s is Aa2, Stable.