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S&P downgrades B.C.’s top credit rating as economy endures ‘pandemic’s blow’

The move comes shortly after Fitch also downgraded the province
B.C. Finance Minister Selina Robinson | Credit: Government of B.C.

B.C.’s credit rating has taken yet another hit after S&P Global Ratings downgraded it from a top AAA rating to AA+.

Wednesday’s move comes after Fitch Ratings downgraded the province’s credit rating from AAA to AA+ late last month.

“The COVID-19 pandemic's blow to the provincial economy has turned after-capital results into large deficits and is elevating the burden of tax-supported debt such that the Province of British Columbia's key fiscal and debt metrics are no longer comparable with those of AAA-rated peers,” S&P Global said in its July 7 decision.

In April, B.C. unveiled its first budget since the fall 2020 election, projecting a $9.7 billion deficit.

Budget 2021-22 included $13 billion in additional operational spending over three years, of which $8.7 billion is in new, permanent program spending, and $4.6 billion in pandemic recovery and contingencies.

It also included a $3.5 billion increase over three years to capital spending, which brings the total capital spend to $26.4 billion over three years.

“We now consider that operating and after-capital deficits for fiscal 2021-2022 will be significantly larger than expected at the outset of the pandemic, which will likely lengthen the time it takes for the province to return to fiscal balance,” S&P Global said in its decision.

“B.C.'s 5.3% contraction in 2020 was in line with that of the country and we expect the province's real GDP rebound in 2021 and 2022 will be broadly the same.”

The credit rating agency’s outlook for the province stands at stable.

"As with all Canadian provinces rated by Fitch, British Columbian's debt sustainability is sharply deteriorating due to the fiscal strain caused by the pandemic at the provincial and federal levels," Fitch said in its own June 25 decision that saw it downgrade the province’s rating from AAA to AA+.

“The rating action reflects Fitch's expectation that the province's debt burden will rise substantially over the coming year as it addresses the economic and fiscal disruption caused by the pandemic. It also reflects the parallel rapid increase in federal borrowing, which Fitch incorporates in its approach to rating Canadian provinces."

Moody's Investor Service rated B.C. at AAA as of June 2, while DBRS Ltd. (DBRS Morningstar) rated B.C. at AA (high) as of June 15.

With a file from Nelson Bennett

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