Canadian banks recently wrote reports regarding the 2018-19 Saskatchewan provincial budget. The following features information from reports by RBC, TD, BMO and CIBC.
Budget highlights:
• The government is projecting a $365 million deficit for 2018-19, with an expected return to surplus in 2019-20.
• Revenue is forecast to be a total of $14.24 billion, up about $80 million from last year.
• Capital spending is expected to have peaked, with the province spending less on capital projects in the coming years. Major capital projects this year included the Jim Pattison’s Children’s Hospital in Saskatoon and the new Saskatchewan Hospital North Battleford.
• Non-renewable resource revenue is to constitute 10 per cent of the budget’s revenue, rather than 32 per cent in the 2008-09 budget.
• The budget uses $58.18 as the price of a barrel of oil. The number is from West Texas Intermediate.
• Revenue or costs associated with cannabis legalization is not budgeted.
RBC
RBC expects the province to achieve real GDP growth of 2.9 per cent in 2018 (the highest amount among provinces), and 2.5 per cent in 2019, a projected second to Newfoundland.
Over the last few years, lower prices among certain commodities is partially responsible for lower resource royalty revenues, RBC wrote.
Provincial governments have strategized differently. Alberta chose deficits over major cuts, Newfoundland had no choice but austerity, and Saskatchewan was somewhere in between.
“Given our generally flat forecast for [Western Canadian Select] prices through 2019, the governments of Saskatchewan and Alberta may continue to grapple with budgetary shortfalls in the coming years.”
Regarding jobs in Alberta and Saskatchewan, RBC wrote the jobs outlook “is encouraging as an economic rebound puts these provinces at the top of the [job] growth tables in the next two years.”
RBC cites immigration to the provinces as contributing to Saskatchewan’s economic achievements.
TD
The bank expects moderate growth, partially due to expanded export-oriented industries.
“Following two years in the red, Saskatchewan’s economy began to recover last year, with economic growth estimated to have come in at just under two per cent.”
Global demands for the province’s agricultural exports including grains, pulses and oilseed should perform well, according to TD, and oil production is expected to increase.
“Oil production in the province rose by an estimated six per cent last year and rising rig counts point to further output increases in 2018.”
TD expects construction to not perform as it has in the past.
BMO
Economist Robert Kavcic wrote the government’s projection for the price of oil is conservative and is on track to achieving a small surplus next year.
BMO predicts subdued growth in the province.
“The key message here is that, while the economy has left the recession behind, the growth environment will remain much more subdued than that of the pre-2014 period, when the economy was running at a near four per cent clip.”
According to Kavcic, “the province remains in a good relative fiscal position, and looks even more favourable when compared to its oil-producing peers.”
Prices can have a significant effect on budget projections.
“Note that a $1 drop in oil prices would cut revenues by $16 million; a $10 drop in potash would shave $35 million; and a one cent increase in the value of the Canadian dollar (forecast at 78.3 US cents in FY18/19) would cut $21 million.”
CIBC
The bank held similar views as the above, and that the government has “a steady hand approach to prudent fiscal management.”
CIBC commented on the province’s credit rating.
Most credit agencies haven’t changed the province’s credit rating “as a result of the oil shock” and maintain stable rating outlooks.
Moody’s gives Saskatchewan an “AAA stable.”
Other organizations, including DBRS, Fitch and Standard and Poor, rate the province as AA. Economists with CIBC write “the projected metrics are now better aligned with S&P’s AA rating category.”
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