B.C. government's budget performance to be the weakest globally: forecast | Daily Hive

B.C. government's budget performance to be the weakest of peers, both domestically and internationally: forecast

B.C. legislature in Victoria. (Kenneth Chan)

Two of the world’s largest credit rating agencies have once again downgraded the Government of British Columbia’s credit ratings.

Standard and Poor (S&P) Global Ratings dropped the government’s long-term credit rating from AA- to A+ and the short-term rating from A-1+ to A-1, while Moody’s Ratings downgraded the government’s baseline credit assessment from AA1 to AA and the long-term issuer and senior unsecured debt ratings from AAA to AA1. Both changes were issued yesterday.

This could have significant implications for the provincial government’s financial capacity, potentially increasing borrowing costs, raising interest rates on bonds, and deterring new investment.

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The effects may extend beyond operating expenses, possibly impacting the financial capacity in its capital budget for pursuing new additional major construction projects in healthcare, transportation infrastructure, utilities, schools, and publicly-supported affordable housing.

These latest changes mark consecutive downgrades since the pandemic, with both agencies raising sharper red flags in their rationale and outlook on the provincial government’s fiscal health than in previous assessments.

While the downgrades incorporate the negative impacts of the Canada-U.S. trade war initiated by President Donald Trump’s tariffs, the agencies assert this has been years in the making, blaming the government’s policy choices, fiscal management practices, inability to curb down the annual budget deficits and growing debt load, and an apparent lack of a plan to restore some semblance of balance.

During the provincial government’s March 2025 budget announcement — which resembled a budget of austerity compared to previous budgets in recent years — it was stated that the deficit for the 2025/2026 fiscal year will reach $10.9 billion in the 2025/2026 fiscal year, $10.2 billion in 2026/2027, and $9.9 billion in 2027/2028.

In particular, the operating cost of the healthcare system has grown significantly since the pandemic. The B.C. Ministry of Health is projected to spend over $35 billion in 2025/2026 — up from $21 billion in 2019/2020. This will grow by $4.2 billion over the next three fiscal years.

It should also be noted that the government has included a multibillion-dollar contingency fund in each fiscal year’s operating budget since the pandemic.

Over the next three fiscal years, the provincial government has set aside $4 billion annually as a contingency fund — a combined total of $12 billion in contingencies through the 2027/2028 fiscal year. This is intended to provide the provincial government with room to introduce new programs and initiatives to blunt the impact of the U.S. tariffs.

As well, according to the government’s estimates, provincial debt will see a steep increase over the coming years, rising from $133 billion in 2024/2025 to $156.6 billion in 2025/2026 and $208.8 billion in 2027/2028. This includes rising taxpayer-supported debt from $97.7 billion in 2024/2025 to $118.7 billion in 2025/2026 and $166.5 billion in 2027/2028. B.C.’s debt-to-GDP ratio will rise from 22.9 per cent in 2024/2025 to 26.7 per cent in 2025/2026 and 34.4 per cent in 2027/2028.

This includes the growing debt of crown corporation BC Hydro, which accounts for 30 per cent of the provincial government’s total debt.

“Continued weakening in governance and fiscal and debt management”

Moody’s assessment is more pessimistic, as it forecasts a deficit of $14.3 billion for 2025/2026 — about $3.4 billion higher than government projections. It also highlights that the provincial government’s estimated capital spending for the three fiscal years ending in 2027/2028 will reach a total of about $60 billion, which exceeds the size of the previous three-year capital plans.

Much of this can be attributed to the significantly market-inflated costs for construction materials, labour, and equipment since the pandemic. Critics have also suggested the government’s requirement for union labour for provincial projects since 2018 is also a growing cost factor.

Moody’s notes that if the current capital plan is fully realized, the provincial government’s debt will rise to 190 per cent of revenue in 2025/2026 and could exceed 240 per cent by 2027/2028. The agency deems these ratios to be “very high levels” compared to other highly rated regional and local governments in Canada and globally.

“The downgrade reflects a structural deterioration in British Columbia’s credit profile, with larger deficits and higher levels of debt than we previously projected driven by significant increases in both operating and capital spending. In our view, these developments also reflect a weakening in governance and risk controls, albeit from very strong levels,” states Moody’s.

“The increase in deficits and rising debt largely stems from provincial policy choices, which we view as evidence of a continued weakening in governance and fiscal and debt management, from high standings. We view this as a notable departure from the province’s historical approach of budgeting that focused on limiting the growth in debt or protecting its fiscal position. The lack of clarity by the government on a path back to balance further weakens fiscal management.”

“Fiscal discipline and stability has wavered in recent years”

As for S&P’s assessment, the growing mismatch between expenditures and revenues could result in the provincial government facing further downgrades over the next two years due to its larger operating and after-capital deficits compared to peer jurisdictions.

In fact, S&P asserts the provincial government’s budgetary performance will be the “weakest of peers, both domestically and internationally.”

Especially with the worsening economic headwinds, this agency believes there is a growing likelihood that the provincial government’s financial management will take insufficient steps to “ensure a fiscal consolidation path.”

“We believe the province is at a turning point with respect to the management of its finances,” states S&P.

“We believe that the province’s commitment to fiscal discipline and stability has wavered in recent years as B.C. has materially increased its spending for both operations and capital investment to unparalleled levels.”

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