Smaller Provinces Push Trudeau Government for Emergency Aid

(Bloomberg) -- Canada may need to create a emergency fund to help provincial governments, despite central bank moves that have cut borrowing costs, Newfoundland and Labrador’s finance minister said.

“It is certainly a positive sign that the Bank of Canada continues to signal it recognizes the challenges provinces are facing,” Tom Osborne said in an emailed reply to questions. “We still believe the proposal for an emergency fund has merit, and we will continue to work with our provincial counterparts and the federal government on solutions to the challenges we collectively face.”

Last week the central bank announced a plan to buy as much as C$50 billion ($35 billion) of provincial debt with maturities as long as 10 years, adding to an earlier plan that was focused on short-term securities.

The plan triggered an immediate improvement in provincial borrowing costs. The premium investors require to hold 10-year provincial debt over federal bonds has shrunk to about 86 basis points from a high of 117 at the height of the market pandemonium in late March, according to Bloomberg Barclays indexes.

Manitoba Premier Brian Pallister asked the federal government last month to create an emergency credit agency to lower provincial borrowing costs as the coronavirus pandemic shuttered businesses across Canada. He repeated that request Tuesday.

“It would save provinces across the country significant money, into the billions of dollars, over the next decade,” Pallister told reporters in Winnipeg, noting the money could be put toward health care and social services instead of “going to additional profits at the bank.”

‘Work Needed’

Manitoba may need to borrow C$10 billion ($7 billion) by the end of the year for its routine borrowing and to cover the costs of the coronavirus crisis, Pallister said. That’s almost double what it initially anticipated.

The east coast province of Newfoundland, Canada’s second smallest with 521,000 people, faces higher borrowing costs than its peers because the bill for a hydro mega-project has skyrocketed and the crash in oil prices will slam revenues. The province also has an aging population and faces outmigration pressures. Its credit rating, which is A1 at Moody’s Investors Services and A at S&P Global Ratings, was put on negative outlook by Moody’s April 1.

“There is going to be a significant amount of work needed to rebuild the economy of Canada and of Newfoundland and Labrador when we move beyond Covid-19,” Osborne said.

Canada’ Department of Finance is engaging with provinces facing specific funding needs, Prime Minister Justin Trudeau told reporters earlier in a press conference in Ottawa.

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