The Government of British Columbia’s credit rating has been downgraded due to “a marked deterioration in the province’s credit fundamentals.”
Moody’s Ratings, an international credit rating agency, published the rating on March 19, citing concerns that the province did not make enough progress towards a balanced budget.
B.C.’s 2026-27 budget projected a historic deficit, increasing by nearly 40 per cent year-over-year to $13.3 billion on an operating budget of $98.83 billion.
The agency is forecasting that B.C’s net debt will increase to $178.5 billion in the current fiscal year, 208.7 per cent of the province’s total revenue. By 2028-29, they project it to be $230 billion, 250.7 per cent of total revenue.
Moody’s also commented on the fact that B.C.’s 2026-27 budget has “limited progress and visibility toward balanced budgets.”
“It’s the significant deterioration we’ve seen in our deficits, our debt, and how we manage that, but also the fact that there’s no clear, credible plan to return to balanced budgets or to even change the trajectory of our fiscal position,” Jairo Yunis, the director of policy for the Business Council of B.C, told Daily Hive.
He said in 2020-21, B.C. had a deficit of about 5.6 billion during a time when unemployment rates were in double digits and large parts of the economy were shut down.
“Today, we’re seeing deficits that are three times that size, even though the economy is operating normally, so to speak. So that tells you that it’s a structural issue, that spending has been growing much faster than revenue.”
Since 2021, operating spending has grown by about 40 per cent, while revenues have grown by 18 per cent.
“And so when spending consistently outpaces revenue, like that, the gap has to be financed … and that’s what’s driving the rise in debt.”
Yunis added that the province has also increased its capital spending significantly.
What is a credit rating?
A credit rating is an assessment of the borrower’s ability to pay both interest and the principal balance. Yunis called it a “signal to investors” on how safe it is to lend money to the province.
“[The] government borrows billions of dollars every year to fund services like health care, like education and to spend as well on major infrastructure projects. So, when a credit rating goes down, that means that investors are seeing more risk.”
And to compensate for that risk, investors will ask for a higher interest rate, thus costing the province more money.
“And every additional dollar spent on interest is a dollar that can’t go to health care, that can’t go to education, that can go to tax relief for people. That’s the real world impact of a downgrade.”
According to Moody’s, interest costs are projected to rise to six per cent of revenue in 2026-27 and up to 7.9 per cent in 2028–29, up from an estimated 4.7 per cent in 2025–26.
If debt-servicing costs were a ministry, it would be the third largest in the government, Yunis said. It is also the fastest-growing line item on the budget.
A negative outlook
Moody’s also maintained its “negative outlook” for B.C., stating that the size and duration of planned deficits reduce the province’s ability to respond to unanticipated shocks.
Yunis said that this means that B.C. now has less fiscal room to respond if another crisis like COVID were to happen.
“You have a situation where the province’s fiscal position is weakening, just as the need for resilience is increasing, and that’s the wrong combination. Ideally, you want strong public finances when risks are rising, so you can respond if something goes wrong.”
Keeping a negative outlook means there’s a possibility of future downgrades if the province doesn’t come up with a plan to pull back on spending and control the deficit.
“We have CUSMA being renegotiated in the summer. We have a slowing economy. We now have rising fuel prices thanks to war. We have geopolitical issues,” said Yunis.
“So what happens if we end up in a recession, or a trade shock, or an oil shock. What’s going to happen? We don’t have as much room as we want to take care of British Columbians.”
What can the province do?
Yunis said the government should have held the line on wage negotiations with the BCGEU union, which resulted in a 12 per cent increase over four years, above expected inflation.
Right now, B.C.’s current options are cuts to services, higher taxes, or selling assets.
This deficit in turn sends a negative signal to people and businesses — that they can expect higher taxes or public services cuts, as the government bridges the gap between spending and revenue.
“At one point, the math is going to catch up with you. And it’s now catching up with us,” said Yunis.