Friday, March 11, 2011

 

THE DAY THE RUBBER HITS THE PAVEMENT

The major credit-rating agencies have been casting a watchful eye on the Province of New Brunswick, and they are unlikely to respond kindly unless the provincial budget later in the month moves significantly to stop the financial hemorrhaging.

Travis Shaw who speaks for Dominion Bond Rating told the Saint John Telegraph-Journal a few weeks back that New Brunswick's "challenging fiscal situation" has become a matter of serious concern. Unlike "Dominion", the two other top rating agencies, Standards & Poor's and Moody's Investor Services, haven't waited for the first budget from novice Premier David Alward: They've already downgraded the province's ratings outlook amid concerns for the amount of debt it's been accumulating.

New Brunswick's 700-thousand inhabitants have an accumulated provincial debt of about $9.5 - Billion on which they pay $600 - Million / year in interest alone. Little wonder the deficit for the current fiscal year is pegged at about $820 - Million. By the way, none of which includes the staggering $.4.5 - Billion debt of the provincial utility, N.B. Power.

Somewhat unlike the United-States; a country that puts its President on a pedestal on election night, only to spend the rest of his term tearing it down; Progressive-Conservative Premier Alward, elected late last September, has been enjoying a surprisingly good post election "honeymoon". A recently published eastern Canadian poll pegged him with a higher rating than during last fall's election.

The financial challenges facing New Brunswick are daunting. They run the gamut from weak revenues, a shrinking workforce, ageing population, rising health-care spending and increasing dependence and reliance on transfers from the central government in Ottawa. At a recent meeting with the Prime Minister, Mr. Alward walked away (he claims) with a commitment that the Federal Government would not reduce transfers to the province in the next fiscal year.

In cross-province public budget consultations the P.C. government indicated that everything was on the table, but there really isn't much wiggle room left short of raising taxes and selling provincial assets; Crown Corporations and properties. Of those, the New Brunswick Liquor Corporation (N.B. Liquor), with annual profits near $175 - Million, seems the most likely target. The previous government's attempt to sell another Crown, the debt laden N.B. Power, caused such a ruckus that burying the "liquor" headline is perhaps a compelling reason why Mr. Alward's government has scheduled the budget speech on the same day the Federal Minister of Finance is scheduled to deliver the national budget - March 22nd.

Selling liquor to Maritimers is a lucrative proposition; one that doesn't imply rocket-science. So, when N.B. Liquor goes up for sale, given New Brunswick's precarious fiscal situation, Mr. Alward's biggest problem may be to pass on the temptation to sell at a fire sale price. A significant concrete effort to pull the Province of New Brunswick out of its spiral into bankruptcy is potentially a first significant "bump" along the soft ride the Premier has been enjoying so far.

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