STREAK OF BALANCED BOOKS CONTINUES

  • Budget balances: +$89.1 mn (0.2% of nominal GDP) in FY22 (-$244.8 mn, -0.6% in March 2021 Budget), which builds on a final surplus of $408.5 mn (1.1% of GDP) reported in the FY21 Public Accounts (chart 1).
  • Net debt: lowered by $743 mn versus Budget to $13.4 bn (33.5% of GDP) for FY22 (chart 2, p.2), which builds on the $439 mn reduction already reported for FY21.
  • Nominal GDP growth: forecast increased to 6.5% in calendar year 2021, up from the 4.2% rise assumed in the March 2021 Budget.
  • New Brunswick is the only province to project balanced books this year; these projections are clearly positive for its fiscal trajectory and should be well-received by the province’s creditors.

Forecast budgetary improvements are anchored by own-source revenue gains, which reflect a stronger economic recovery than anticipated at budget time. The province is the only one in Canada to project balanced books this year and, with the unexpected surplus reported for FY21, is now on pace to be in the black for the fifth consecutive year in FY22. That is in contrast to the shortfalls expected to persist through FY24 as of the last fiscal blueprint. Debt levels are also on a more modest path and should continue to trend downward as a share of output as the recovery persists.

FY22 spending plans were revised higher, but it is unclear at this time whether that will translate into higher outer-year expenses. The largest single overshoot—about $203 mn in additional “General Government” spending—relates to settlement of the recent public sector strike, of which planned wage rate increases for the next several years were a point of debate. Health care spending forecasts were also lifted—by just $34 mn versus Budget—largely because of higher-than-expected pandemic cost pressures. “Circuit-breaker” restrictions intended to tamp down a spike in COVID-19 cases were recently extended until late November.

Although the province’s own sources accounted for over 80% of the revenue improvement versus Budget, federal transfers remain an important part of the fiscal plan. This update penciled in a $93.1 mn increase in federal grants versus the March blueprint, mainly attributable to a one-time boost in Health Transfer, which in turn relates to health care system and immunization needs. As a share of provincial receipts, federal transfers to New Brunswick have been among the highest in any province over the last several years. The government anticipates that 36% of total FY22 revenue will come from the federal government, just under the 40% share in FY21 and 37% portion in FY20.

No borrowing projections were provided in the update, but a more than $300 mn improvement in projected budget balances implies a significant reduction in FY22 borrowing requirements. The province’s March 2021 budget came with $1.4 bn in long-term borrowing requirements for FY22. According to New Brunswick’s investor relations website, as of October 18, that figure had been revised to $1.1 bn, with $500 mn in borrowing already completed.

DISCLAIMER

This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.

These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.

Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.

Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.

This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.

™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.

Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.

Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.

Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.