Faced with a $2.4 billion deficit when it
took office in 1991, the government took immediate steps to return
the province to financial health. The resulting financial strategy
had three elements: first, eliminate the deficit; second, control
and manage debt; and, third, achieve both goals while protecting
health care, education and other core services.
By the 1995/96 fiscal year, the province
had eliminated its deficit, and the focus shifted to managing
debt. The 1995 budget outlined a comprehensive debt management
plan. The plan made a commitment to repay the debt created by
previous deficits and to cap and reduce the overall cost of debt
for B.C. taxpayers.
The cornerstone of the plan is the reduction
in the ratio of taxpayer-supported debt to GDP. This is the principal
factor used by rating agencies in determining provincial
credit ratings. B.C. currently has the lowest taxpayer-supported
debt per person and as a per cent of GDP and spends less than
any other province to service its debt. This is reflected in
the highest provincial credit rating, which British Columbia now
[Chart C1 Interprovincial Comparison of Net Debt at March 31, 1995]
The govenrment believes that a plan to manage
debt should be based on five principles:
The debt mnagement plan tabled in last year's
budget followed extensive consultation with British Columbians.
The Premier's Forum on Jobs and Investment identified the need
for a longer-term fiscal plan. The Premier's Summit on the Economy
recommended the adoption of objective and easily understood benchmarks
for the province's fiscal and debt position. The Minister of
Finance and Corporate Relations received specific advice on appropriate
targets from an advisory group of labour and business leaders.
The debt management plan incorporated that
advice through four key goals:
The plan also establishes specific benchmarks
against which progress in achieving these goals can be measured
- tougher benchmarks than those recommended to the government
by provincial business and labour leaders.
The government finished the 1995/96 fiscal
year on track with the debt management plan: Two targets have
been met; one has been exceeded; and the fourth is very close. The fourth - paydown of direct debt - was not met because B.C.
Endowment Fund proceeds intended to be used to pay down direct
debt were diverted to buy out the previous government's commitment
to the Vancouver Island natural gas pipeline agreement, and to
temporarily finance unforeseen delays in collections from the
Table G8 gives additional historical information
on debt indicators.
The government remains committed to achieving
the milestones set out in the debt management plan (DMP). Government
will continue with its policy of fiscal restraint and reduction
in the size and cost of government over the next four years.
These actions will be necessary to protect health care and education
for the people of the province.
|Direct Debt Repayment
|Direct Debt |
|Interest Bite* (%)||7.5||7.4||7.7||8.0||8.0||7.9||7.9|
The long-term plan to pay down accumulated direct debt and control
the growth of total taxpayer-supported debt is outlined below:
|Year Ending March 31|
|Direct Debt ($ billion)||8.9||5.9||2.9||0.0|
|Interest Bite (%)||7.9||7.0||6.0||5.0|
This prudent financial management guarantees that B.C. will continue
to have the best debt position of any jurisdiction in Canada,
and can continue to deliver health care and education services,
and to make affordable investments in people and infrastructure
that will keep the economy growing.
More complete details on the province's debt profile are provided in the Debt
Management Progress Report. The first issue of this annual report
provided information on the province's debt at March 31, 1995, and was released
in December 1995. The next issue will be released with the 1995/1996 Public
The provincial government and its Crown corporations and agencies
borrow to finance operations and capital projects.
Borrowing for operations is required when revenues fall short
of expenditure and to finance other cash requirements such as
loans and investments. These borrowings have declined due to
the elimination of the deficit over the past several years.
Borrowing for capital projects finances the building of schools,
hospitals, roads and other social infrastructure, These investments
provide essential services for today as well as benefits for future
generations of British Columbians.
A topic box in this report describes the categories of borrowing.
Further information on net debt is contained in
Review of 1995/96 Financing
In 1995/96, net new borrowing for the government and its Crown
corporations and agencies totalled $1.5 billion, of which $769
million was for taxpayer-supported debt, as shown in Table C3.
Chart C2 shows that the borrowing was primarily for capital investments, including:
In 1995/96, the province took advantage of relatively low interest
rates by pre-borrowing
$888 million under the warehouse borrowing program to meet some of its 1996/97 borrowing requirements. These funds will remain invested until they are required by the government or its Crown corporations and agencies.
1996/97 Financing Plan
Table C3 outlines the 1996/97 financing plan for the government and its Crown corporations and agencies.
In 1996/97, the provincial government and its Crown corporations
and agencies have financial requirements totalling $3.4 billion.
These will be financed through new borrowing of $2.6 billion
and by reducing the balance in the warehouse borrowing program.
As a result, provincial debt is estimated to total $28.4 billion
at March 31, 1997, a decrease of $99 million from March 31, 1996.
Taxpayer-supported debt is estimated to increase 3.9 per cent
to total $20.6 billion at March 31, 1997.
Major capital projects planned for 1996/97 include:
Commercial debt is expected to decrease 1.3 per cent to $7.7 billion,
and the balance of the warehouse borrowing program will be $120
million at March 31, 1997. BC Hydro will use cash balances and
pre-borrowing undertaken in 1995/96 to retire high-interest-rate
Almost all Crown corporation and agency borrowing is done through
the fiscal agency program. Under this program, the provincial
government borrows directly in financial markets and relends the
funds to Crown corporations and agencies. Borrowing and financing
costs remain the responsibility of the Crown corporation or agency.
The fiscal agency program provides lower cost financing to Crown
corporations due to the province's strong credit rating (the best
of all Canadian provinces) and its ability to borrow at lower
Source of Funds
Funds are borrowed by the province from a variety of sources,
including public financial markets in Canada, the United States,
Europe and Asia; the Canada Pension Plan Investment Fund; private
institutional lenders; and provincial trusteed funds.
Chart C3 shows that since 1986, the province has actively shifted away from private placements towards public issues. These include BC savings bonds, and issues under the Canadian domestic, Canadian
medium term note (MTN) and Euro MTN programs.
|Net Debt Outstanding at March 31, 1995||1995/96 Net Debt Change||Net Debt Outstanding at March 31, 1996|
|Net Debt Outstanding at March 31, 1997|
|Provincial Government Direct||10,181.4||36.0||10,217.4||1,137.0||1,190.0||(53.0)||10,164.4|
|Crown Corporations and Agencies:|
|Social and Government Service||5,678.2||408.0||6,086.2||1,013.7||423.7||590.0||6,676.2|
|Other Fiscal Agency Loans||501.0||(27.7)||473.3||16.6||319.5||(302.9)(3)||170.4|
|Less Amounts Held as Investments/ Cashfor Relending by the Consolidated Revenue Fund and Crown Corporations and Agencies||
|Warehouse Borrowing Program||-||888.0||888.0||(768.0)||-||(768.0)||120.0|
|GOVERNMENT, CROWN CORPORATION||-|
|AND AGENCY DEBT TOTAL||26,515.4||1,587.6||28,103.0||2,613.7||2,665.2||(51.5)||28,051.5|
|Other Guarantees (4)||398.7||(98.2)||300.5||-||53.3(5)||(53.3)||247.2|
|TOTAL DIRECT AND GUARANTEED DEBT||26,914.1||1,489.4||28,403.5||2,613.7||2,718.5||(104.8)||28,298.7|
|Non-Guaranteed Debt (6)||124.7||2.5||127.2||-||(5.7)||5.7||132.9|
|TOTAL PROVINCIAL DEBT||27,038.8||1,491.9||28,530.7||2,613.7||2,712.8||(99.1)||28,431.6|
|TAXPAYER-SUPPORTED DEBT (7)||19,037.5||769.2||19,806.7||2,891.3||2,117.3||774.0||20,580.7|
The province continues to diversify its borrowing sources to
cultivate strong domestic and international investor demand for
British Columbia debt securities; strong demand helps minimize
financing costs for the province. A broad investor base is also
important given increased competition for funding and the need
for multiple funding sources in the face of sometimes difficult
and volatile capital markets.
CATEGORIES OF DEBT
The following chart provides a breakdown by category of estimated
provincial net debt outstanding at March 31, 1997. Further details
are provided in Table G7.
Provincial government direct debt funds government operations, including refinancing of maturing debt and other financing transactions.
Warehouse borrowing program takes advantage of low interest rates to borrow money in advance of actual requirements. This debt will eventually be allocated to either the provincial government or its Crown corporations and agencies.
Commercial Crown corporations finance the construction and maintenance of transmission lines and generating facilities in the case of BC Hydro, and rail system and dock facilities in the case of BC Rail. These corporations are self-supporting as they generate revenue from the sale of services at commercial rates and pay their own operating expenses, including debt service charges.
Economic development Crown corporations and agencies finance ferry terminal and fleet expansions, public transit construction and maintenance projects, and highway construction projects around the province. Although these corporations and agencies sell services directly to the public or receive dedicated revenue, their revenue may not fully cover their operating expenses. In these cases, the government may provide grants or other forms of assistance.
Social and government service Crown corporations and agencies finance construction of hospitals, schools, post-secondary educational institutions and justice facilities. Debt service requirements are met through provincial grants or rental payments and, for hospitals, partly through local property taxes.
Other fiscal agency loans finance the construction and maintenance of post-secondary residence and parking facilities. Debt service requirements are met through user fees.
Loan guarantees to private sector and individuals are provided by the provincial government through various programs, including student financial assistance. Loan guarantees do not represent direct obligations of the government except in the event of default by the borrowers who received the guarantee.
Non-guaranteed debt consists primarily of mortgages which were incurred by a government body without a provincial guarantee.
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