Manitoba's premier says province has the highest debt in the country. Not so, says CIBC economist

Premier Brian Pallister has repeatedly claimed Manitoba is the most indebted province in Canada — an assertion the Manitoba premier's press secretary says is backed up by a chart generated by CIBC.

The problem is, the CIBC chart does not show Manitoba as the most indebted province — and the CIBC economist who created it says the province has misinterpreted it.

At every press conference he held this week, Pallister has claimed this province has the highest debt in the country. 

"We are the leading province in Canada per capita on debt now," the premier said during a press conference on Monday. 

On Tuesday, he went on to say, "It is our job to make sure we don't just borrow from our future … that we don't add to what is already the highest in debt. And we are the highest indebted province in Canada right now."

But the CIBC chart cited as evidence for that has nothing to do with per capita debt, says CIBC economist Maria Berlettano.

"When you adjust for [Manitoba Hydro] debt, which is self-supported by Manitoba Hydro, Manitoba's debt actually is high, but is sort of within the average," said Berlettano, who heads up the bank's Canadian government credit-strategy department.

The chart was included in a workforce-management presentation made last week to Manitoba Crown corporations, universities and other government agencies which are now facing pandemic-related staff and spending cuts.

In that presentation, the provincial Treasury Board secretariat asked those agencies and Crowns to prepare scenarios involving 10, 20 and 30 per cent workforce reductions.

Berlettano says the chart is complex, but was intended for institutional investors who pay for sophisticated analyses. It shows what the bond-rating agency S&P has to say about Manitoba's financial situation.

"It is counterintuitive because the [bar] is so high for Manitoba," Berlettano said.

Manitoba's actual taxpayer-funded debt burden ratio — which excludes Manitoba Hydro debt — is indicated by the red horizontal line on the yellow Manitoba bar.

Using this measure, Manitoba comes in behind Ontario, Quebec, New Brunswick, and Newfoundland and Labrador.

Berlettano also notes this chart does not include $45.8 billion of debt incurred by Hydro Quebec, a Crown utility that does its own borrowing. That means the chart does not compare the rankings of provincial debt when hydro-electric utility borrowing is included across the board.

Berlettano says the chart actually shows Manitoba in a middling position when it comes to debt.

Manitoba's "high" debt rating is better than Ontario's and Newfoundland and Labrador's, which are rated as "very high."

It also shows Manitoba has a "positive" rating alongside its A+ rating, which means there is a one-in-three chance the province will receive a credit upgrade during the next year or two. 

"The worst in Canada is Newfoundland," Berlettano said. 

Why doesn't Hydro debt count?

Bond rating agency S&P (formerly known as Standard & Poor's) no longer treats Manitoba Hydro's $21.6-billion debt — which makes up over 40 per cent of the province's $51-billion debt total —  as taxpayer-supported, according to a report authored by Berlettano.

Last October, S&P made the determination that Manitoba Hydro's debt is no longer taxpayer-supported because "as a regulated, vertically integrated utility with an effective monopoly position, [it] has the capacity and demonstrated willingness to repay its debt obligations as they become due."  

Manitoba Hydro pays its debt through revenue generated by billing its customers.

What about per capita debt?

A recently published report by RBC shows Manitoba has the fourth-highest per capita debt, after Newfoundland, Ontario and Quebec. 

But Berlettano says per capita debt is not a useful measure of debt burden.

"There's really only two ways to calculate a debt burden, and that's debt-to-GDP, or debt-to-revenue," she said.

Manitoba was in a good financial position going into the COVID-19 pandemic because it was getting close to balancing its budget.

"If you look at Manitoba's ratings overall, they don't signal any kind of concern … because their ratings are somewhat in the middle of the road, relative to all the other provinces," Berlettano said.

She said this strong starting position bodes well for Manitoba's future credit ratings, because the province will be compared to other jurisdictions when COVID-19 spending is taken into account. 

"Rating agencies are not all of a sudden going to wholesale downgrade governments all around the world," she said.

"What they're going to do is identify those that were in a very weak starting position."