Provincial governments facing higher debts and more financial pressure

After riding a red-hot economy to shrink deficits and grow surpluses, provincial governments across the country are beginning to see their finances flounder.

Each province has released their budget for the upcoming year and collectively are facing higher spending and record-size debt.

Alberta and New Brunswick are the only provinces to publish balanced budget projections compared to eight of the 10 provinces reporting a surplus two years ago, when a strong national economy and high commodity prices helped fill many provincial coffers.

Now, the «shine is wearing off,» describes a report by BMO Capital Markets, as revenue growth is slowing and spending is on the rise.

The combined provincial budget deficit is on track to swell from $10.6 billion last year to $27.9 billion this year. Total provincial net debt is expected to climb by more than $65 billion this upcoming fiscal year, which is a record annual increase and more than twice the underlying budget deficit, according to BMO.

Total borrowing is on pace to climb past $130 billion this year, which BMO described as the largest tally on record excluding the first year of the pandemic.

«The provinces are still in good fiscal shape, but the lustre and steady positive momentum is wearing off,» the BMO report states.

Rising debt levels are also leading to higher expenses every year in interest payments.

«We're seeing most provinces feeling some financial pressure,» said Pedro Antunes, chief economist at the Conference Board of Canada.

«Long-term financing costs are going to be much more elevated in the future than they were even pre-pandemic,» he said. «It means more difficulty for provinces to deliver on other programs when they have essentially debt-financing growing as a share of