Manitoba will spend extra $3.2M to finance debt after interest rate bump

A hike Wednesday in the Bank of Canada's key lending rate means Manitoba will pay more to service its provincial debt.

Progressive Conservative Finance Minister Cameron Friesen said the 0.25 per cent increase announced Wednesdayin Ottawa was expected and was factored into Manitoba's fiscal planning for the year, but increases of one per cent or beyond could be harmful for the province.

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The rate increase means the province will pay approximately $3.2 million more over the next nine months the remainder of the fiscal year on the floating portionof the province's $23-billion debt.

If the Bank of Canadaintroduced a series of hikes to one per cent, the $900-million costs for servicing both fixed and floating debt could riseas much as $83 million.

"Today's announcement continues to underscore the fact that results are necessary,that action is necessary. And I would want to make clear that our government takes this very seriously," Friesentold reporters.

Province hitting 'budgetary targets': Friesen

Friesenused the rate hike to highlight his government's ongoing fiscal austerity measures and take a swipe at former NDP governments for building up the province's debt and budget deficit. The PCs reduced Manitoba's deficit this year from $900 million to $840 million.

"We are hitting the budgetary targets that we are setting out. We know that we need to return our system to sustainability," Friesen said.

Friesenand his advisors are looking to next September, when the Bank of Canadamakes its next statement.

Some economists predict the interest increase could be as much as one full percentage point.

"If that is the case it will have real implications for Manitobans. Those who have a mortgage that's floating,those who are applying for a mortgage at a higher rate [and] businesses that are undertaking to invest," Friesen said.

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If the interest rate rose an extra per cent, the cost to service Manitoba's debt could rise into the $1-billion range. Friesen said a hikethat large would be "outside the parameters of anything we had anticipated."

Credit rating reviews coming soon

Of further concern to Friesenand his government are credit-rating issues. Manitoba has received two credit rating downgrades in the past one from Moody's in 2015, and one from S&P Global Ratings, previously known as Standard and Poor's, in 2016.

Both major rating agencies will release their analysis of Manitoba'sfiscal health in the next few weeks.

When asked when the PCgovernment's austerity program would start to show results with a decline inthe deficit, Friesensaid the impact was already starting to materializeand part of the effort was to trim back hundred of millions of dollars in promises made by the former government whichthe Tories have cancelled.

Friesen said his government is still committed to balancing the provincial books by the end of its second term.