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Monday, February 1, 2016

February 1, 2016

 

For Immediate Release

 

Kicking Decisions Down the Road:

 

Lending Agency Loses Confidence in Lack of Liberal Fiscal Policy

 

Keith Hutchings, Official Opposition for Finance, says the poor management choices and inaction of the Ball government since elected is responsible for Newfoundland and Labrador’s credit rating downgrade.

 

On January 29, Standard & Poor’s lowered the province’s credit rating from A+ to A with a negative outlook, citing “uncertainty” about the government’s “expected fiscal policy”. On January 25, Moody’s changed the province’s outlook from stable to negative, citing the lack of a “comprehensive fiscal plan”. On January 21, DBRS changed the province’s outlook from stable to negative, expressing concern about the lack of “a credible multi-year fiscal plan”. (See Backgrounder)

 

This is in stark contrast to the DBRS decision on November 19, just before the election, to maintain their confidence in the province’s outlook despite their recognition of the significant reduction in oil revenues. “They gave our administration a passing grade in November because we had presented a fiscal recovery plan,” said Hutchings. “It was only after the November election, when the new government ditched our plan and said they wouldn’t be ready with a new one for more than a year, that the agencies lost faith in the Newfoundland and Labrador government.”

 

“The Liberals’ first action as a government was to undo the long-term fiscal plan our administration presented last April by canceling the HST increase for January 1, slashing $1.2 billion from the revenue side of the province’s ledger with no plan to replace it. When the Liberals announced their ‘plan to develop a plan’ on January 12, they said they would not be ready to produce ‘definitive and comprehensive actions’ until Budget 2017, more than a year from now, even though a long-term fiscal recovery plan is needed right away.”

 

“It was only after the Liberals’ HST cut and their ‘not ready until 2017’ announcement that all three credit-rating agencies lost confidence in the Newfoundland and Labrador government and downgraded the province’s status, citing the lack of a long-term fiscal plan,” Hutchings said. “The downgrade is a clear indictment of the Ball government’s poor management choices and inaction.”

 

“In fact, even after the latest downgrade, the Finance Minister still didn’t get it, but repeated the message that they will not be ready with longer-term actions until Budget 2017,” said Hutchings.

 

Media Contact: Heather MacLean, Director of Communications, Office of the Official Opposition

 

(709) 729 6105, heathermaclean@gov.nl.ca

 

 

 

Backgrounder

 

In its January 29 news release, Standard & Poor’s complemented the officials in the province’s Finance Department for the way they managed the disclosure of fiscal information, and complemented past administrations for their fiscal choices, saying: “The province's financial management is strong, in our view.” But still, they downgraded the province’s credit rating, stating, in part: “The negative outlook reflects the uncertainty of the magnitude of the government's expected fiscal policy response to lowered offshore royalties and projected operating and after-capital deficits. We could revise the outlook to stable if the newly elected government takes the fiscal measures necessary to establish an improving trend in its budgetary performance beyond fiscal 2017, and develops a credible plan to restore budgetary balance in the medium term.” – Source (registration required): https://www.standardandpoors.com/en_US/web/guest/article/- /view/type/HTML/id/1570683

 

In its January 25 news release, Moody’s stated, in part: “The outlook could be revised back to stable if the province introduces and implements a comprehensive fiscal plan that limits debt accumulation and debt service at levels in line with similarly rated peers, or exceeds these levels for a short period only.” – Source: https://www.moodys.com/research/Moodys-Changes-Outlook-to-Negative-Affir... Ratings-for-Newfoundland--PR_342160

 

In its January 21 news release, DBRS stated, in part: “Without a material improvement in the fiscal and debt outlook supported by a credible multi-year fiscal plan, a one-notch downgrade is likely.” – Source (registration required): http://www.dbrs.com/research/289271/dbrs-changes-trend-to-negative-on-th... of-newfoundland-and-labrador-on-significant-debt-growth-amid-rapid-oil-price- decline.html

 

In its November 19, 2015 news release, DBRS stated, in part: “All trends remain Stable. Weak commodity prices present significant fiscal and economic challenges for the Province, although past efforts to reduce debt provide a degree of flexibility to withstand the current deterioration in fiscal performance and expected accumulation of debt. In light of continued commodity price weakness, DBRS expects that additional fiscal measures will likely be required to limit the deterioration in key financial metrics.” Also: “Over the medium term, Newfoundland’s fiscal recovery plan forecasts gradually declining deficits until balance is restored in 2019-20.” – Source (registration required): http://www.dbrs.com/research/286886/dbrs-confirms-newfoundland-and-labra... and-r-1-low-stable-trends.html

 

In her January 29 news release, Finance Minister Cathy Bennett stated, in part: “we will take decisive actions with Budget 2016 this spring, followed by medium-term actions throughout the course of the year and longer-term actions in Budget 2017.” – Source: http://www.releases.gov.nl.ca/releases/2016/fin/0129n11.aspx

 

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