BMO Capital Markets Government Finance Seminar Roy Spence Director of Liability Management May 5, 2010

Overview of Presentation

• A Brief Overview• Political Landscape• Economic Review• Budget 2010–11• Liability

Management & Pensions

A Brief Overview

• Majority Government• Deficit of:

$488 million in 2009–10 $221 million in 2010–11 balanced budget in 2013–14

• Net Direct Debt to GDP ratio 39.4%, expected to peak at 40.2%

• Borrowing requirements $2 billion for next few years

• Public Service Pension to be fully funded by December 2010

Political Landscape

• NS Legislature is made up of 52 seats

• NDP Majority Government– NDP – 30 Seats– Liberal – 10 Seats– PC – 8 Seats– Independent – 1 seat– Vacant – 2 seats

• Last election in June 2009

Economic Review

Economic Performance 2005 – 2009

• Average annual growth from 2005 – 2009

• Nova Scotia’s nominal GDP performance has slipped in recent years compared to the Canadian average

Indicator NS Canada

Real GDP 1.1% 0.8%

Nominal GDP 2.0% 2.7%

Employment 0.5% 1.0%

Personal 

Income 3.2% 4.4%

Retail Sales 3.7% 3.1%

Exports ‐5.9% ‐4.2%

Nova Scotia Economic Outlook• Nova Scotia economy weathered the

recession through stimulus, accommodative monetary policy and stable service sector.

• Real GDP growth is expected to slow to only 0.6% by 2012 and 2013, drivers:

– Population decline– Tighter monetary policy – Fiscal choices to bring budgets back to

balance.

• Outlook is consistent with non-project driven growth of 0.8-1.4% per year.

• Risks: – Currency volatility– Commodity price fluctuations– Monetary policy – Unforeseen major project investments – Unforeseen productivity improvements

Nova Scotia Energy• Sable Offshore Energy Project

10-year refurbishment in 2009, production in long-term decline.

• Deep Panuke to start production in 2011, producing between 200 and 300 mmcf/d

• By 2013, Nova Scotia will generate at least 18.5% of electricity through renewable energy

• There are currently 41 wind turbines in Nova Scotia with an installed capacity of 60 MW

Economic Assumptions (Budget)

Indicator 2010 2011

Real GDP 2.7% 3.1%

Nominal GDP 4.7% 5.4%

CPI Inflation 1.8% 2.4%

Employment 0.8% 1.9%

Unemployment 8.7% 8.1%

Indicator 2010 2011

Real GDP 1.9% 1.2%

Nominal GDP 4.4% 2.7%

CPI Inflation 1.6% 1.8%

Employment 1.2% 0.3%

Unemployment 8.6% 9.0%

Canada Nova Scotia

Budget 2010–11

Fiscal Summary• Nova Scotia managed

to post surpluses totaling $1.16 billion since 2001–02.

• Limited amount of Offshore Offset Accord monies accrued to surplus.

• Crown Share Adjustment monies to surplus amounted to $164 million.

Surplus/ (Deficit) in Millions $

-500

-400

-300

-200

-100

0

100

200

300

400

500

'01-

02

'02-

03

'03-

04

'04-

05

'05-

06

'06-

07

'07-

08

'08-

09

'09-

10

'10-

11

'11-

12

-12-

13

2010–11 Budget & Fiscal Plan

• Province plans to return to surplus by 2013–14

– $221 million deficit in 2010–11– $370 million deficit in 2011–12– $187 million deficit in 2012–13

• Expenditure Management: 2013–14 expenses $9.14 billion, up only $100 million from 2010–11

• Tax changes result in $362 million in revenue by 2013–14

Net Debt / GDP

Annual Percentage Growth in Expenses

-2%

0%

2%

4%

6%

8%

10%

'2006-07 '2007-08 '2008-09 '2009-10 '2010-11 '2011-12 '2012-13 '2013-14

• Expenses to remain relative stable over next four years.

• Government to rely on Expenditure Management Initiative to help achieve savings over the medium term.

• Number of civil servants 10% lower by 2013, reductions through attrition.

• Health sector: health authorities shared efficiencies, streamlining health care services, and drug costs

Major Tax Measures

• Harmonized Sales Tax rate increased to 10%, up from 8% (+ $310 million annualized)

• Affordable Living Tax Credit—to offset HST on those earning less than $34,800 (-$70 million annualized)

• Poverty Reduction Credit—to offset HST on low-income, defined as less than $15,000 (- $3 million)

• Elimination of personal income surtax, introduction of 5th personal income tax bracket (+ $31.6 million)

• Small business tax rate reduced to 4.5%, from 5%

Liability Management & Pensions

Borrowing Strategy

• Key objectives are

– to protect the intrinsic value of debt held by investors thereby improving receptivity of Nova Scotia debt issues in the domestic market

– to ensure flexibility while maintaining presence as a global borrower

• Opportunistic financing through

– Domestic public markets– Domestic MTN program, including retail notes– $1.25 billion USD SEC shelf registration maintained

Foreign Currency Exposure

0%

10%

20%

30%

40%

50%

60%

70%

80%

1995 1999 2003 2007 2009

• Provincial Finance Act requires foreign currency exposure less than 20%.

• Foreign currency exposure eliminated in late 2007.

Debt Maturity Profile

0

250

500

750

1,000

1,250

1,500

1,750

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

2040

2042

Non-Sinking Fund Sinking Fund

Borrowing Program, millions $

Public Service Pension Plan

• Government contribution of $536 million in 2010 and change in benefits worth about $1 billion to fully funded plan by end of 2010

• CPI indexing set at 1.25% for the next five years, regardless of actual CPI

• After five years, contingent indexing based on health of plan

• New plan members’ benefits reduced from current members

0

20

40

60

80

100

120

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Teachers’ Pension Plan

• Joint Trusteeship• Contingent indexing

– Funded ratio less than 90%, no indexing

– Funded ratio between 90 and 100%, ½ of CPI

– Funded ratio over 100%, full indexing

0

20

40

60

80

100

120

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Summary

• Nova Scotia posted positive economic growth in 2009, slow growth expected ahead

• Budget deficit in 2010–11 relatively modest

• Expenditure management

• HST increased to 15% from 13%

• Net Debt / GDP ratio stable at about 40%

• Borrowing program at $2 billion

• Public Sector Pension fully funded

• Teachers’ Pension Fund – Joint Governance

Legal NoticeThis presentation was compiled by the Nova Scotia Department of Finance. This information is intended for general information purposes only and does not constitute an offer to sell or a solicitation of offers to purchase securities. It has not been approved by any securities regulatory authority and it is not sufficient for the purpose of deciding to purchase securities. It may have errors or omissions resulting from electronic conversion, downloading or unauthorized modifications.Statements in this presentation may be “forward-looking statements” within the meaning of the U.S. Private Securities Litigation R f A f 1995 S h f d l ki i l i i i k d h f hi h ld h f Reform Act of 1995. Such forward-looking statements involve uncertainties, risks, and other factors which could cause the state of Nova Scotia’s economy to differ materially from the forecasts and economic outlook contained expressly or implicitly in such statements. The Province of Nova Scotia undertakes no obligation to update forward looking statements to reflect new information, future events or otherwise, except as may be required under applicable laws and regulations.While the information in this presentation, when posted or released, was believed to be reliable as of its date, NO WARRANTY IS MADE AS TO THE ACCURACY OR COMPLETENESS OF THIS DOCUMENT OR THE INFORMATION IT CONTAINSMADE AS TO THE ACCURACY OR COMPLETENESS OF THIS DOCUMENT OR THE INFORMATION IT CONTAINS.