Nunavut government awarded “stable” credit rating

The Government of Nunavut has received a credit rating of AA (low) with a stable trend.

The rating, done by DBRS Ltd., offers an independent opinion about the GN’s “ability and willingness to meet its financial obligations,” according to a Dec. 6 news release.

The “stable” trend reflects DBRS’s view that Nunavut’s public finances, with an economy dominated by the public sector, are “unlikely to fundamentally change through the medium term.”

There are only three Canadian provinces with a higher rating, the GN noted in a news release.

“DBRS expects budgetary results to remain strong and the debt burden low,” said the report.

This is the first Nunavut rating issued by DBRS, released as part of a five-year contract with the GN.

Nunavut’s economic growth is “volatile,” DBRS said, because “private- and public-sector investment projects are often lumpy and have a pronounced impact on the small economy.”

But Nunavut’s economic growth is expected to remain “strong though volatile” through the medium term, while “strong population growth, increased public infrastructure and continued investment in the resource sector will support steady growth in economic output,” the report states.

Nunavut’s total debt, as measured by DBRS, is low but has been rising. The federal government has set Nunavut’s maximum amount of borrowings at $650 million.

On March 31, 2018, total debt was $457.4 million, up from $345.2 million a year earlier.

DBRS pointed out that the majority of Nunavut’s debt is composed of long-term debt used to finance the Qulliq Energy Corp. and the public-private partnership liability related to Iqaluit’s new airport.

DBRS said that, with no more borrowing in the near term, Nunavut’s debt burden is likely to fall “modestly.”

The support that Nunavut gets from the federal government helps the territory’s stability, DBRS said, because Ottawa contributes 80 per cent of the budget.

“The strong institutional framework is foundational to the credit profile. Enshrined in federal legislation, the institutional framework decouples the government’s finances from a weak underlying economy and results in stable government finances and a low debt burden,” DBRS said.

As of last March 31, Nunavut had $209 million in unused debt capacity under the federal limit. Infrastructure is a priority for the government, so DBRS said it believes this could lead to more borrowing over the medium-to-longer term.

“Given the strong institutional framework, low debt burden and capacity to afford additional debt financing, there is ample room within the assigned rating to withstand an increase in debt,” the report states.

This could be welcome news to some in Nunavut, such as promoters of the Grays Bay Road and Port Project who are lobbying for more territorial government support for infrastructure projects.

The DBRS acknowledged that Nunavut faces chronic housing shortages, high living costs, poor health outcomes, high rates of suicide and substance abuse, and lower levels of educational attainment.

As a result, “there is significant demand for government programming, though the ability of the government to respond is constrained by the size of federal transfers and the practical realities of delivering services to isolated, northern communities. The persistence of these factors will weigh on future economic growth potential,” DBRS said.

Nunavut’s finance minister, George Hickes, welcomed news of the “stable” rating.

“Our continued low debt burden and strong budgetary results reflect our government’s conservative and prudent financial management,” Hickes in a news release on Dec. 6. “Economic growth, due in part to Nunavut’s strong population growth, increased public infrastructure and investments in the resource sector, is expected to remain strong.”

Government of Nunavut rating report. by on Scribd