The Province's Surprising Surplus: A Look at Affordability Measures and Their Impact
The Newfoundland and Labrador government is set to announce a range of affordability measures in the fall, but what exactly these measures will entail remains a mystery. Finance Minister Craig Pardy has revealed that the province is generating surplus revenue based on oil price and exchange rate projections established in the spring budget. This surplus is a result of the province's favorable position in the global energy market.
One of the most intriguing aspects of this surplus is the potential impact on affordability measures. The province benefits to the tune of $33 million for every $1 in excess of the budgeted price projection on a barrel of oil. As of July 15th, the projected price of oil was $79 US a barrel, but the actual price was averaging $98. This means that the province is generating a significant surplus, which could be used to fund affordability measures.
The province has set an 80/20 ratio for budget surplus, with 80 per cent to service the debt and 20 per cent for affordability measures. This means that the province has a significant amount of surplus revenue that could be used to fund affordability measures. However, the exact nature of these measures remains unknown.
One of the key factors contributing to the province's surplus is the exchange rate. The province had the exchange rate with the U.S. dollar at .74 cents on July 15th, but it has since increased to .72. For every one cent differential, it would be $35 million, so both of these factors, the oil price and exchange rate, are contributing to the province's positive surplus.
The province's surplus is also being confirmed by bond rating agency Morningstar DBRS, which has confirmed the province's long-term debt credit rating at "A", with the short-term debt credit rating at R-1 or low. The agency has also confirmed the same credit ratings for NL Hydro's guaranteed long-term debt and short-term debt. The trends on all credit ratings are Stable, reflecting Morningstar DBRS' view that despite the deterioration in the province's budgetary outlook, risks to the credit ratings are balanced.
The agency also highlights the potential positive fiscal and economic benefits of the MOU with Hydro-Quebec, increased federal defence spending, and the potential development of the Bay du Nord project. These factors could have significant positive fiscal and economic benefits over the medium to longer term.
In conclusion, the province's surplus is a result of favorable oil prices and exchange rates, and it has the potential to fund a range of affordability measures. However, the exact nature of these measures remains unknown, and it will be interesting to see what the province announces in the fall. One thing is certain: the province's surplus is a significant development that could have a lasting impact on the region's economy and the lives of its residents.
