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Credit Update Province of Nova Scotia Charles Allain Executive Director, Liability Management & Treasury Services Department of Finance & Treasury Board May 7-8, 2019
Credit Update
Province of Nova Scotia
Charles AllainExecutive Director, Liability Management & Treasury ServicesDepartment of Finance & Treasury BoardMay 7-8, 2019
Majority Government, second mandate with last election in May 2017
Forecast surplus of $28.4 million in 2018–19
Estimated surplus of $33.6 million in 2019-20
Net Direct Debt to GDP ratio 34.3% at March 31, 2019, falling to 33.8% in March 31, 2020
Borrowing requirements of $1,503 million in 2019-20
A Brief Overview
Economic Review
0.9%0.8% 0.9%
1.6%
1.2%
3.0% 2.8% 2.9%
3.6%
3.2%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
Actual Forecast
Real GDP
Nominal GDP
Economic Outlook: GDPStable real GDP growth, with nominal growth accelerating as inflation returns to its long run pace
2014-16: productivity growth offsets aging demographics
2017-18: stronger global growth; population growth accelerates; rising labour force and employment; diversifying exports. Slowing major project spending.
2019: end of natural gas production (decommissioning starts), gold production, pause in housing investment expected
2020-22: major project timing influences pace of growth; reversion to demographic trends with higher productivity
Economic Outlook: Productivity GrowthFor the five years starting in 2013, Nova Scotia posted the strongest productivity growth since 1998-02.
1.9
%
1.9
%
1.6
%
1.8
%
1.5
%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%1
99
8
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
Labour productivity Hours worked for all jobs
Real value added
Demographic Outlook: Population Rebound
750
800
850
900
950
10001
971
197
3
197
5
197
7
197
9
198
1
198
3
198
5
198
7
198
9
199
1
199
3
199
5
199
7
199
9
200
1
200
3
200
5
200
7
200
9
201
1
201
3
201
5
201
7
201
9
202
1
202
3
202
5
202
7
Actual Forecast
Population: all ages
0
50
100
150
200
250
300
350
400
197
1
197
3
197
5
197
7
197
9
198
1
198
3
198
5
198
7
198
9
199
1
199
3
199
5
199
7
199
9
200
1
200
3
200
5
200
7
200
9
201
1
201
3
201
5
201
7
201
9
202
1
202
3
202
5
202
7
Actual Forecast
0-17 18-39
40-64 65+
More population growth from 2015 to 2018 than from 1992-2015
Population trends turning in younger cohorts
Economic Outlook: Labour Market Growth
390
410
430
450
470
490
5101
99
8
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
Labour force Employment
0%
2%
4%
6%
8%
10%
12%
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
Hu
nd
red
s
Unemployment Rate
Labour force and employment rising in last 2 years, despite aging population
2018 unemployment rate: 7.5%lowest since the 1970s
Economic Outlook: Diversifying Exports
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
United States
Total All Countries
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
900.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
China
Latin America (incl. Mexico)
European Union
Asia & Oceania (excl. China)
Rest of World
Arctic and Offshore Patrol Ships
$4.3 billion project over the 25 year lifespan
Currently increasing Nova Scotia GDP by hundreds of millions; supporting 1000s of jobs
Completed: 2025
Canadian Surface Combatant
$56 to 60 billion project budget
Construction: Early 2020s through late 2040s
Economic Outlook: National Shipbuilding Procurement
9
Nova Scotia Capital Plan $691 million 2019-20
Highway Twinning
$390 million investment over seven years
Health Care Facility
QE II redevelopment $2 billion; activity ongoing, ramp up in 2020s. Public-private partnership model with $600 million to be tendered this year.
Cape Breton Regional Hospital redevelopment $100 million
Economic Outlook: Public infrastructure
10
SOEP and Deep Panuke well sealing and decommissioning of platforms through 2021
$1.6 billion expenditure
Atlantic Gold Corporation gold production ongoing
Other major projects
Ocean Supercluster
Goldboro LNG facility – uncommitted, potentially $8 bln
Rural Broadband - $120 million invested in internet trust
Economic Outlook: Other Major Projects
11
Budget 2019-20
Budget 2018-2019 Forecast (‘000s)
Estimate 2018-2019
Forecast 2018-2019
Forecast Variance
General Revenue FundRevenues
Ordinary Revenue 9,773,351 9,794,978 21,627
Ordinary Recoveries 655,546 678,628 23,082
Net Income Government Business Enterprises 381,255 384,918 3,663
Total Revenue 10,810,152 10,858,524 48,372
ExpensesDepartmental Expenses 9,693,362 9,797,101 103,739
Refundable Tax Credits 146,883 129,816 (17,067)
Pension Valuation Adjustment 128,803 116,492 (12,311)
Debt Servicing Costs 893,573 862,544 (31,029)
Total Expense 10,862,621 10,905,953 43,332
Consolidation and Accounting Adjustments 81,899 75,867 (6,032)
Provincial Surplus (Deficit) 29,430 28,438 (992)
13
Budget 2019-20 Estimates (‘000s)
Estimate 2018-2019
Estimate 2019-2020
Budget Variance
General Revenue FundRevenues
Ordinary Revenue 9,773,351 9,962,736 189,385
Ordinary Recoveries 655,546 658,509 2,963
Net Income Government Business Enterprises 381,255 389,224 7,969
Total Revenue 10,810,152 11,010,469 200,317
ExpensesDepartmental Expenses 9,693,362 10,101,784 408,422
Refundable Tax Credits 146,883 134,324 (12,559)
Pension Valuation Adjustment 128,803 51,837 (76,966)
Debt Servicing Costs 893,573 856,107 (37,466)
Total Expense 10,862,621 11,144,052 281,432
Consolidation and Accounting Adjustments 81,899 167,206 85,307
Provincial Surplus (Deficit) 29,430 33,623 4,192
14
Four Year Fiscal Plan
2018-19 2018-19 2019-20 2020-21 2021-22 2022-23($ millions) Estimate Forecast Estimate Estimate Estimate EstimateGeneral Revenue Fund
RevenueOrdinary Revenue 9,773.4 9,795.0 9,962.7 10,185.3 10,521.8 10,898.0 Ordinary Recoveries 655.5 678.6 658.5 641.3 637.2 623.5 Net Income Government Business Enterprises 381.3 384.9 389.2 396.0 401.1 408.8
10,810.2 10,858.5 11,010.5 11,222.6 11,560.0 11,930.3
ExpensesDepartmental Expenses 9,693.4 9,797.1 10,101.8 10,209.5 10,550.6 10,969.4
Refundable Tax Credits 146.9 129.8 134.3 135.3 136.3 137.3 Pension Valuation Adjustment 128.8 116.5 51.8 54.7 59.2 58.6 Debt Servicing Costs 893.6 862.5 856.1 787.1 757.0 700.7
10,862.6 10,906.0 11,144.1 11,186.6 11,503.2 11,865.9
Consolidation and Accounting Adjustments 81.9 75.9 167.2 16.0 9.0 9.0
Provincial Surplus (Deficit) 29.4 28.4 33.6 51.9 65.8 73.4
Net Debt 15,172 15,069 15,276 15,568 15,652 15,729 Nominal GDP 44,329 43,977 45,219 46,537 48,232 49,766 Debt to GDP Ratio 34.2% 34.3% 33.8% 33.5% 32.5% 31.6%
Total Revenue
Debt Management & Borrowing Program
Debt Management & borrowing program
• Borrowing program is $1,503 million in 2019-20 followed by $1,366 in 2020-21 and $1,263 in 2021-22.
• Province does not have any material Crown corporations.
• Net Tangible Capital Asset investments are $240 million in 2019-20, $344 million in 2020-21 and $150 million in 2021-22.
• Mandatory sinking funds of $1.83 billion with the last maturity in July 2022 and liquidity funds of $900 million that are invested in 2 to 5 year provincial bonds and CMBs.
Credit Ratings
Nova Scotia's current long-term credit ratings, are:
• Dominion Bond Rating Service ("DBRS"): A (high), outlook stable,confirmed September 12, 2018
• Standard & Poor's ("S&P"): AA-, outlook stableupgraded September 14, 2018
• Moody's: Aa2, outlook stableconfirmed August 9, 2018
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
Opportunistic financing through:
• Domestic public markets,
• Domestic MTN program,
• Province has maintained $1.25 billion USD SEC shelf.
Themes for 2019-2020 / 2020-21
• Establish new 10 year benchmark
• Reopen December 1, 2051
• CDOR to be rolled-over in similar term
Summary
• Nova Scotia expects slightly slower real GDP growth of 0.8 and 0.9% for the next 2 years.
• Continuing small budget surpluses over the four year fiscal plan
• Net Debt / GDP ratio at 34.3%, falling to 31.6% by March 31, 2023
• Borrowing program of $1,503 million in 2019-20, followed by $1,366 million in 2020-21 and $1,263 million in 2021-22
Other Information
Political Landscape
NS Legislature has 51 seats
Liberal Majority Government
• Liberal – 27 Seats
• PC – 17 Seats
• NDP – 6 Seats
• Vacant – 1
Last election in May 2017
Nova Scotia only province to have no fixed election date
Maturity Schedule
0
500
1,000
1,500
2,000
Non-Sinking Fund Sinking Fund
Debt Portfolio Profile
2-May-19
Total Financial Market LT Debt $15,849,796,893
Average Coupon 4.52%
Average Term (years) 13.21
Average Term to Reset (years) 12.72
Duration (years) 8.47
Duration to Reset (years) 8.21
CDOR Based Finacial Market Debt $2,698,097,000
CORRA Based Financial Market Debt $200,000,000
Total Long Term Floating $2,898,097,000
LT Floating Debt as a % of LT Debt 18.28%
Mandatory SF Debt $2,076,246,907
Average Coupon 8.86%
Average Term (years) 1.86
Average Duration (years) 1.61
Asset Funds Profile
Liquidity Fund Assets (PDMF)
Fixed Assets 203,000,000 22.5%
Floating Assets 669,900,000 74.4%
Cash 27,500,000 3.1%
Total 900,400,000
Average Coupon 2.18%
Avg Term (years) 2.22
Avg Duration (years) 2.12
MFC Assets (swapped)
Fixed Assets 0 0.0%
Floating Assets 788,524,334 100.0%
Cash 0 0.0%
Total 788,524,334
Average Coupon 3.34%
Avg Term (years) 4.31
Avg Duration (years) 3.77
2-May-19
Mandatory SF Assets
Fixed Assets 1,609,524,942 87.5%
Floating Assets 191,800,000 10.4%
Cash 38,580,000 2.1%
Total 1,839,904,942
Average Coupon 3.84%
Avg Term (years) 1.57
Avg Duration (years) 1.47
Declining Offshore Natural Resource Revenues
0
100
200
300
400
500
600
700
Offshore Royalties + CSAP ($millions)
Nova Scotia’s GDP By IndustryNova Scotia has a diverse economy where services represent 80% of the economy.
Agriculture, forestry, fishing
3%
Mining, oil, gas1%
Utilities2% Construction
6%
Manufacturing8%
Wholesale & Retail trade 10%
Transportation 3%
Information, culture3%
Finance, insurance6%Real estate, rental,
leasing 16%
Professional, technical 5%
Education, Health care, Social Assistance
17%
Public administration 12%
Other Services…
Nova Scotia’s Exports as a % of GDPNova Scotia has relatively little sensitivity to NAFTA vulnerable sectors and to trade with the US generally.
Fiscal Summary, Surplus / (Deficit), millions
-700
-600
-500
-400
-300
-200
-100
0
100
200
300
400
500
600
700
20
02
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21
Economic Impact of NSS to Nova ScotiaThe following assessment and estimates by Conference Board of Canada, 2011
Average annual employment of almost 8,500 (direct, indirect and induced)
Peak years economic impact:
• 11,500 jobs (direct, indirect, induced)
• $800 million annual increase in GDP
• $350 million in annual personal disposable income
• $350 million in federal, provincial and local tax revenue
Additional benefits:
• 30 years of stable employment
• Opportunity to bring Nova Scotians back home to work
• Stability for local supply chain, including small- and medium-sized businesses
• Halifax becomes a high-growth city.
Major Projects Near CompletionQueen’s Marque
$200 million development on Halifax waterfront, completion date in 2019, 450,000 square feet of commercial, apartment, hotel and retail space.
The Pavilion
$140 million – condominiums, apartment, commercial and retail space, being built on the former CBC Halifax site overlooking the Halifax Citadel.
Major Projects Recently CompletedMaritime Link
Nova Scotia Power reports that the Maritime Link is completed and started transmitting power to Newfoundland and Labrador in February 2018.
Nova Centre
Convention Centre in Halifax was completed in March 2017 and is now open for business. The Sutton Place Hotel is expected to open later this year.
