let’s clear up any confusion. The downgrade in the Province’s credit rating by
Moody’s, a credit rating agency, resulted not from a “highly ambitious” deficit
plan, as the Agency suggested, but because the Finance Minister’s ambitions about
Budget balance in 2022-23 were supported only by talk. Moody’s as much as said,
“talk is cheap.”
the issue is a $14.5 billion “Direct” Debt compounded by $9.4 billion of
utility debt referred to by the Budget Estimates as “self-financing” — which,
of course, it isn’t. “Rate mitigation” — required to prevent power costs
reaching 23 cents/kWh — means that the Province’s $4 billion equity
contribution to the project is “sunk cost”. Implicitly, that’s Moody’s view,
discussion of how much additional utility debt is also “sunk” awaits
quantification of “rate mitigation” by the PUB. But don’t expect that outcome
to be encouraging to ratings agencies or lenders. Remember, too, that the debt
of the Province is enlarged by the deficit in the public sector pension plans —
which is omitted from the Budget Estimates. How high is the “real” Net Debt?
Effectively, it is already in the$20 billion neighbourhood.
other points. Finance Minister Tom Osborne will have you believe that our fiscal
problem is totally the fault of the crazy Muskrat Falls project. Indeed, it is a huge
debt burden which should mot be minimized. But Mr. Osborne’s second Budget, passed just a few weeks ago, contained
the seventh deficit in a row; notable even if the first three came compliments of the Tories.
keep the issue simple, in this fiscal year, we plan to spend $8.6
billion annually on Current and Capital (infrastructure) Account against $6.2
billion revenue. Public Private Partnerships (P3s) will also soon be a driver
of Current Account expenditures, too. The new elephant in the room is “rate mitigation” which, as much as the Government might try, can’t be talked away with doublespeak.
It takes no
clairvoyance to figure out that the problem raised by Moody’s is
huge. The Finance Minister’s description of the agency’s decision as “not a
significant downgrade” is simply not valid. Osborne seems inured to the
implication of “heightened credit risk”, Moody’s ascription of our fiscal
House of Assembly’s short sitting in July would have been a perfect time for Members
to debate our debt crisis. New Members might have gotten a dose of reality — though,
on reflection, their more experienced peers have long ignored the fact that
discipline, especially of the fiscal kind, requires backbone.
a few felt solace having heard the Finance Minister say, “Our lenders were not
at all surprised by this.” Hopefully, some thought his remarks a disavowal of rational
public policy apart from a wanton dismissal of a crisis.
is not a game. Rating and lending agencies assess an economy’s financial
metrics and determine whether they are strong enough to ensure the Bonds are
paid when due. Moody’s have spoken to the Province’s “weak financial metrics”,
the burden of rate mitigation and what they see as an “ambitious” (translated
as “unrealistic”) “path to financial stability”. They could not have put
it more clearly.
can parse NL’s financial predicament in its most intimate detail. But the big picture
reveals the problem of errant political leadership. Likely the public expects
the NDP leader, Alison Coffin, to pile onto Osborne’s debt gambit too.
balance of power is more than the sum of the Government’s numerical shortfall
in the House of Assembly. Coffin must know that her future — and any growth in
popular support enjoyed by the NDP — is inextricably intertwined with how she
handles the Finance Minister and fiscal issues. She must know that the Liberals
(and the Tories) would revel in the opportunity to blame her for their prevarication.
That day is coming. Just wait.
most people have difficulty understanding how the mechanism of the Bond Markets
works or the conditions requisite to keeping the relationship between borrower
and lender fluid. Except for those suffering the misapprehension that
government is a bottomless money-pit, people do understand that, when interest
rates increase (an effect of a credit downgrade), more money to the banks means less for the groceries — in this
case, health care and social services. This represents the evolving debt wall towards which the
Government is accelerating. A lot of people who depend on government for
employment income, pensions and other benefits will suffer.
will deal with the mess before it is too late?
politicians won’t discuss the possibility that the debt is already beyond our
capability to manage. They won’t even engage in a discussion of what a reduction in spending
of $1 billion or more actually looks like, even if the cuts occur over time.
need for debate should be a drumbeat for every sector — lawyers, doctors, teachers,
engineers, and especially public sector labour.
won’t happen, though.
egalitarianism has completely taken hold in the province. Everyone is waiting
for a miracle!