The B.C. government鈥檚 deficit due to coronavirus economic effects has been estimated at $12.5 billion, but it could be 20 or even 30 per cent per cent worse than that, Moody鈥檚 Investor Services calculates.
Moody鈥檚 issued an update July 20 after B.C. Finance Minister Carole James released the province鈥檚 , with a mid-range scenario for steep decline and recovery in 2021. This 鈥渂ase case鈥� scenario of a deficit equal to 23 per cent of provincial revenue is 鈥渃redit negative鈥� but does not affect B.C.鈥檚 鈥淎AA stable鈥� credit rating, Moody鈥檚 said in a statement.
Finance Minister ' "base case" scenario brings the province's projected debt to more than $61 billion
鈥� Tom Fletcher (@tomfletcherbc)
The $12.5 billion deficit is the middle of three projections, along with a 鈥渓ess optimistic鈥� and 鈥渕ore optimistic鈥� outlook, depending on how the COVID-19 pandemic persists and how well business and employment adapt and recover.
鈥淚n addition to its main economic and fiscal scenario, the province presented two alternative scenarios for faster or slower economic recovery,鈥� Moody鈥檚 said. 鈥淎lthough the province does not present an estimate of the fiscal effects of its alternative scenarios, we forecast that they could result in a 20-30 per cent improvement or deterioration relative to the projected $12.5 billion 2020-21 deficit.鈥�
Using the more cautious 20 per cent estimate, the 鈥渓ess optimistic鈥� scenario yields a one-year deficit of $15 billion, while the 鈥渕ore optimistic鈥� deficit would be $10 billion.
The full range of estimated impacts from Finance Minister
鈥� Tom Fletcher (@tomfletcherbc)
The massive deficits triggered by COVID-19 have hit credit ratings. In March, Moody鈥檚 downgraded Alberta鈥檚 credit rating for the second time in four months, from AA to AA Low on the petroleum-dependent province鈥檚 long-term debt.
And in June, Fitch Ratings downgraded Canada鈥檚 credit rating from AAA to AA+, with Canada鈥檚 expected deficit leading industrialized countries at $343 billion and its overall debt set to reach the $1 trillion mark.
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B.C. has changed its balanced budget legislation to permit three years of deficits, and Moody鈥檚 notes that the Bank of Canada commitment to keep interest rates a historic lows will ease the burden of beginning to repay the fast-accumulating debt.
B.C.鈥檚 鈥渂ase case鈥� economic scenario projects a 36.4 per cent drop in corporate profits compared to the February 2020 budget, a 15.9 per cent drop in retail sales and a 27.6 per cent decline in housing sales. All are key tax revenue sources for the province.
Under the 鈥渓ess optimistic鈥� scenario, corporate profits drop 45.3 per cent, retail sales would be down 19.6 per cent and housing sales would be down 36.2 per cent. The 鈥渕ore optimistic鈥� scenario is a 25.6 per cent drop in corporate profits, 9.6 per cent lower retail sales and 14 per cent lower housing sales.
鈥淚f local and global health conditions worsen significantly, households and businesses may remain cautious in their decisions for longer, and international trade may be further disrupted,鈥� the finance ministry said in its July 14 economic and fiscal scenario .
tfletcher@blackpress.ca
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