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S&P Global downgrades B.C. credit rating

Rating slides from AA+ to AA
B.C. Premier David Eby delivered his government's first budget under his leadership in February

Global ratings agency S&P Global has downgraded B.C.'s credit rating to AA, from AA+.

While having lower credit ratings often means that borrowers are likely to pay higher interest rates to acquire capital, S&P Global affirmed its A-1+ short-term issuer credit rating for the province. It is unclear exactly what future impact this credit-rating downgrade will have on the province's books. 

"The province of British Columbia's 2023 budget outlines an extensive investment plan for operations and record levels of capital spending, which will reverse the fiscal gains made in the past two years and result in the return of operating deficits, larger after-capital deficits, and a relatively steep increase in debt through to fiscal 2026," S&P Global said in a research update. 

"The negative outlook reflects our view that, in the next two years, a material increase in spending is likely to lead to a large after-capital deficit in excess of 10 per cent of total revenues affecting internal liquidity and maintaining it at low levels."

B.C. Premier David Eby in March went on a spending spree, with about $2 billion in one-off funding announcements aimed to use up much of what had been forecast to be a $5.7 billion surplus in the 2022-2023 fiscal year. 

The rating changes also include downgrading the credit rating for BC Hydro's provincially guaranteed senior unsecured debt to AA, from AA+.

The ratings agency warned that it could lower the province's rating in the next two years if B.C. sustains after-capital deficits greater than 10 per cent of total revenue. 

"The negative outlook reflects a one-in-three chance that we could lower the ratings in the next two years if, in our view, the province's commitment to fiscal consolidation continues to waver as reflected by large after-capital deficits, increasing debt, and very low levels of internal liquidity," S&P Global said.

It added that if the province changes course, its credit rating could be upgraded. 

Business Council of British Columbia economist and senior policy advisor Jock Finlayson told BIV this morning that there was some good news in S&P Global's downgrade analysis. 

"They do note that one of the underlying strengths with the B.C. economy is that it is quite diversified," Finlayson said. "If you compare us to, say Alberta, Alberta is much more heavily weighted to one big sector, which is energy."