New budget doesn't change much for province's credit situation, says ratings agency

Newfoundland and Labrador's budget is a momentum-killer, says the vice-president of one credit ratings agency.

Michael Yake, senior analyst and V.P. with Moody's, said the province's new budget fails to continue the spending-savvy budget from last year.

• N.L. credit rating downgraded to lowest in Canada by bond rating agency Moody's
• Bond rating agency downgrades N.L. following 2016 budget

"There is a little bit of positive news with the lower deficit from last year, but it doesn't seem to continue into the future as well," he said.

"So it's like a one-term gain for the province, but they can't keep that momentum going forward."

The province carries a net debt of $15.2 billion and aims to get itsdeficit down to $778 million by the end of the coming fiscal year.

Moody's was pleased to see the province make bigger strides than expected on reducing the deficit, Yake said.

But the spending problems remain.

• Debt looms large while budget pushes problems down the road, analysts say

After the 2016 budget introduced a bevy of new taxes and fee hikes on every citizenin the province, Yake said the agency understands the government cannot continue to draw more from the taxpayers' pocket.

"With all the revenue measures that were put in place, we know that there's very limited room that the province can move now on further revenue measures," he said.

"It's really going to come down to expenditure control."

Are layoffs the answer?

Finance Minister Cathy Bennett told reporters the government had no plans for "massive layoffs" in the civil service.

Other provinces have found ways to make cuts without an exodus of public sector jobs, Yake said, but it remains to be seen if Newfoundland and Labrador can be one of them.

"There's always other options. That's one thing we know about Canadian provinces," he said. "It's not really for us to say what the province should do, but we will pay attention to how the province manages its expenses going forward."

In July 2016, Moody's downgraded the province's credit rating to the lowest among all Canadian provinces.

Therating dropped from Aa2 to Aa3, with Moody's notingthe amount it expectsthe province to spend on financing its debt wouldreach 12 per cent of totalrevenueby 2020.

That level has not been seen in the province since 2004.

Much ado about oil

Yakealso noted the province's decision to eliminate its contingency "cushion" in last year's budget, a measure designed toaccount forfluctuations in the price of oil.

In the latest budget, the province is projecting oil prices at $56 per barrel. Moody's, meanwhile, is usinga range of $40-60.

"We see that as a bit of a risk," he said of the province's projections, noting other provinces are also within the same range.

"Given the fact it can be volatile, there is a downside risk if the revenue is less than what they forecast."

In her budget speech, Bennett spoke of concerns they had about the province's credit rating when the Liberal government took power in December 2015.

"Without the measures taken our province would have faced serious challenges with rating agencies and banks," she said.

"Some believed that it could have even led to bankruptcy."