Debt Management Plan

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 enjoys.

[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:

  1. Affordability - The level of debt must be based on the ability of the taxpayer to service and repayit.

  2. Equity - Debt financing policies should treat all British Columbians fairly. Future taxpayers should not pay for current services. Neither should current taxpayers bear the entire capital costs of providing future services.

  3. Wise Capital Decisions - Debt incurred to build new facilities should focus on high-priority needs of British Columbians. Projects should be managed to achieve maximum value for money.

  4. Sound Management - All outstanding provincial debt should be effectively managed to minimize risk and achieve the lowest possible interest costs.

  5. Innovation - New, more creative ways should be developed to reduce the need for debt and to make the most productive use of borrowed funds. These include better use of existing facilities, partnerships with the private sector, and the sale of non-essential assets.

Debt Management Update

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.

Progress Report

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 federal government.

Table G8 gives additional historical information on debt indicators.

Medium-Term Plan

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.


1995/96 Preliminary




DMP Milestones
($ millions)
20,65921,093 21,51522,203
($ millions)
20,57220,798 21,02721,259
($ millions)
87295488 944
Direct Debt Repayment
($ millions)
53 153342793
Direct Debt
($ billions)
10.210.2 8.98.9
Debt/GDP* (%) 19.118.618.4 18.318.117.4 18.1
Interest Bite* (%) 7.9
Credit Ratinghighesthighesthighest highesthighest highesthighest
*For taxpayer-supported debt.

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
20002005 20102015
Direct Debt ($ billion)8.9 5.92.9 0.0
Debt/GDP (%) 10.2
Interest Bite (%) 5.0
Credit Ratinghighesthighest highesthighest

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 Accounts.

Government Financing Plan - Overview

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 Table G7.

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 debt issues.

Borrowing Process

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 interest rates.

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.


Forecast 1996/97
Net Debt Outstanding at March 31, 1995 1995/96 Net Debt Change Net Debt Outstanding at March 31, 1996

New Borrowing(1)

Retirement Provision(2)

Net Change
Net Debt Outstanding at March 31, 1997
PURPOSES: ($ millions)
Provincial Government Direct10,181.4 36.010,217.4 1,137.01,190.0 (53.0)10,164.4
Crown Corporations and Agencies:
Commercial 7,973.2(161.5) 7,811.7490.4591.5 (101.1)7,710.6
Economic Development 2,182.3444.82,627.1 724.0140.5583.5 3,210.6
Social and Government Service 5,678.2408.06,086.2 1,013.7423.7590.0 6,676.2
15,833.7 691.316,525.02,228.1 1,155.71,072.4 17,597.4
Other Fiscal Agency Loans501.0(27.7) 473.316.6319.5 (302.9)(3)170.4
16,334.7 663.616,998.3 2,244.71,475.2769.5 17,767.8
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
AND AGENCY DEBT TOTAL 26,515.41,587.6 28,103.02,613.7 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 26,914.11,489.4 28,403.52,613.7 2,718.5(104.8) 28,298.7
Non-Guaranteed Debt (6) 124.72.5127.2 -(5.7)5.7 132.9
TOTAL PROVINCIAL DEBT 27,038.81,491.9 28,530.72,613.7 2,712.8(99.1) 28,431.6
TAXPAYER-SUPPORTED DEBT (7) 19,037.5769.2 19,806.72,891.3 2,117.3774.0 20,580.7

  1. New long-term borrowing plus net change in short-term debt.
  2. Sinking fund contributions, sinking fund interest earnings and net maturities of long-term debt (after deduction of sinking fund balances for maturing issues).
  3. Outstanding debt of the Greater Vancouver Sewerage and Drainage District and the Greater Vancouver Water District were defeased on April 1, 1996. The districts will meet future funding requirements through the Municipal Finance Authority of British Columbia.
  4. Includes student assistance loans, loan guarantees to agricultural producers and guarantees issued under economic development assistance programs and the British Columbia mortgage assistance program. Includes loan guarantee provisions.
  5. Other guarantees do not represent direct obligations of the government except in the event of default by the borrowers who received the guarantee. There is no actual borrowing requirement until a default occurs. A net decrease in the government's potential liability is expected because new guarantees issued will be more than offset by expiring ones.
  6. Includes debt of the British Columbia Lottery Corporation, British Columbia Railway Company (Vancouver Wharves Ltd.), Pacific National Exhibition and Provincial Rental Housing Corporation that is not guaranteed by the provincial government. Although not a direct obligation of the provincial government, this debt is included as part of total provincial debt because it is incurred by a government body.
  7. Excludes debt of commercial Crown corporations and agencies, funds held under the province's warehouse borrowing program, and non-guaranteed debt of the British Columbia Lottery Corporation and British Columbia Railway Company (Vancouver Wharves Ltd.).

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.


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.

Categories of Debt

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.

Budget '96 (Province of B.C.)

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