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Financial Update

Newfoundland and Labrador

Presentation to

Department of Economics - MUN October 25, 2017

AUDITOR GENERAL of Newfoundland and Labrador

1

Current Financial Position

Targets and Forecasts

Components and Risk

Other Issue

Summary

2

Current Financial Position

3

4

(3.0)

(2.0)

(1.0)

0.0

1.0

2.0

3.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

$ Billions

Source: Public Accounts

5

-6%

-4%

-2%

0%

2%

NL PE NS NB QC ON MB SK AB BC

Source: Economic Updates – all Provinces; Statistics Canada; Public Accounts – All Provinces

6

0

2

4

6

8

10

12

14

16

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

$ Billions

Source: Public Accounts

Targets and Forecasts

7

(3.0)

(2.5)

(2.0)

(1.5)

(1.0)

(0.5)

0.0

0.5

2017 2018 2019 2020 2021 2022 2023

Budget 2015-16 Mid-year 2015-16 Targets Budget 2016-17 Budget 2017-18

8

($ Billions)

Source: Provincial Department of Finance

(3.0)

(2.5)

(2.0)

(1.5)

(1.0)

(0.5)

0.0

0.5

2017 2018 2019 2020 2021 2022 2023

Budget 2015-16 Mid-year 2015-16 Targets Budget 2016-17 Budget 2017-18

9

($ Billions)

Source: Provincial Department of Finance

(3.0)

(2.5)

(2.0)

(1.5)

(1.0)

(0.5)

0.0

0.5

2017 2018 2019 2020 2021 2022 2023

Budget 2015-16 Mid-year 2015-16 Targets Budget 2016-17 Budget 2017-18

10

($ Billions)

Source: Provincial Department of Finance

(3.0)

(2.5)

(2.0)

(1.5)

(1.0)

(0.5)

0.0

0.5

2017 2018 2019 2020 2021 2022 2023

Budget 2015-16 Mid-year 2015-16 Targets Budget 2016-17 Budget 2017-18

11

($ Billions)

Source: Provincial Department of Finance

(3.0)

(2.5)

(2.0)

(1.5)

(1.0)

(0.5)

0.0

0.5

2017 2018 2019 2020 2021 2022 2023

Budget 2015-16 Mid-year 2015-16 Targets Budget 2016-17 Budget 2017-18

12

($ Billions)

Source: Provincial Department of Finance

13

(3.0)

(2.0)

(1.0)

0.0

1.0

2.0

3.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f 2019f 2020f 2021f 2022f 2023f

Forecast Actual

$ Billions

Source: Public Accounts (actual); Department of Finance (forecast)

14

0

2

4

6

8

10

12

14

16

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f

Net Debt Net Debt (forecast)

Source: Public Accounts (actual); Department of Finance (forecast)

15

0

5

10

15

20

25

30

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f

Newfoundland and Labrador Average - All Other Provinces Newfoundland and Labrador (forecast)

Source: Public Accounts – all Provinces; Statistics Canada; Department of Finance (forecast)

16

0%

10%

20%

30%

40%

50%

60%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018fNewfoundland and Labrador Average - other provinces Newfoundland and Labrador (forecast)

Source: Economic Updates – all Provinces; Statistics Canada; Public Accounts – All Provinces

Components and Risk

17

(0.5)

0.0

0.5

1.0

Oil Royalties Other Revenue Program Expenses Interest

18

Total - $1.2 Billion

($ Billions)

Source: Public Accounts; Department of Finance

Economic Forecast

19

0

5

10

15

20

25

30

35

40

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017f 2018f 2019f 2020f 2021f

Actual Forecast

$ Billions

20

Source: Department of Finance

0

2

4

6

8

10

12

14

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017f 2018f 2019f 2020f 2021f

Actual Forecast

21

$ Billions

Source: Department of Finance

0

2

4

6

8

10

12

14

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017f 2018f 2019f 2020f 2021f

Actual Forecast

22

$ Billions

- 37.1%

Source: Department of Finance

150

160

170

180

190

200

210

220

230

240

250

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017f 2018f 2019f 2020f 2021f

Actual Forecast

23

Thousands

Source: Department of Finance

150

160

170

180

190

200

210

220

230

240

250

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017f 2018f 2019f 2020f 2021f

Actual Forecast

24

Thousands

- 31,200

Source: Department of Finance

Revenue

25

26

0

1

2

3

4

5

6

7

8

9

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f 2019f 2020f 2021f 2022f 2023f

Other Revenue (actual) Oil Royalties (actual) Atlantic Accords (actual) Other Revenue (forecast) Oil Royalties - forecast

$ Billions

Source: Public Accounts (actual); Department of Finance (forecast)

5.0

5.5

6.0

6.5

7.0

7.5

2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23

27

$ Billions

Source: Public Accounts (actual); Department of Finance (forecast)

0

50

100

150

200

250

300

2018 2019 2020 2021 2022 2023

28

Source: Department of Finance

0.0

0.3

0.6

0.9

1.2

1.5

2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23

29

$ Billions

Source: Public Accounts (actual); Department of Finance (forecast)

30

0

20

40

60

80

100

120

140

160

Actual Production Forecasted Production

Millions Bbls

Source: Canada-Newfoundland Offshore Petroleum Board (actual); Department of Finance (forecast)

31

32

0

1

2

3

4

5

6

7

8

Average Monthly Production - Budget Forecast Actual Production

Millions Bbls

Source: Department of Finance

33

0

1

2

3

4

5

6

7

8

Average Monthly Production - Budget Forecast Actual Production

Millions Bbls

Source: Canada-Newfoundland Offshore Petroleum Board (actual); Department of Finance (forecast)

34

0.0

0.2

0.4

0.6

0.8

1.0

1.2

0

20

40

60

80

100

120

140

Brent Crude Actual (LHS)

$U

S P

er B

arrel

Exch

an

ge

Ra

te

Brent Crude Forecast (LHS) Exchange Rate Forecast (RHS)

Source: US Department of Energy – EAI (Brent); Bank of Canada (Exchange Rate); Department of Finance (forecast)

35

0

10

20

30

40

50

60

70

80

90

April May June July August September October November December January February March

Forecasted Price Actual Price

$U

S P

er B

arr

el

Source: Department of Finance

36

0

10

20

30

40

50

60

70

80

90

April May June July August September October November December January February March

Forecasted Price Actual Price

$U

S P

er B

arr

el

Source: Department of Finance (forecast); US Department of Energy – EIA (actual Brent)

37

0

10

20

30

40

50

60

70

80

90

April May June July August September October November December January February March

Forecasted Price Actual Price Average price

$C

DN

Per

Barr

el

Source: Department of Finance

38

0

10

20

30

40

50

60

70

80

90

April May June July August September October November December January February March

Forecasted Price Actual Price Average price

$C

DN

Per

Barr

el

Source: Department of Finance (forecast); US Department of Energy – EIA (actual Brent); Bank of Canada (Exchange Rate)

39

0

2

4

6

8

10

12

14

16

NL NS PE NB QC ON MB SK AB BC

$ ‘000

Source: Public Accounts – all Provinces; Statistics Canada

(100)

(50)

0

50

100

150

200

250

HST PIT Gas Levy RST Corporate Tobacco Benefits

40

Total ~ $800 million

$ Millions

Source: Department of Finance

41

0

1

2

3

4

5

6

7

8

9

NL NS PE NB QC ON MB SK AB BC

$ 000

Source: Public Accounts – all Provinces; Statistics Canada

Expenses

42

43

0

1

2

3

4

5

6

7

8

9

10

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f 2019f 2020f 2021f 2022f 2023f

Program (actual) Interest (actual) Program (forecast) Interest (forecast)

$ Billions

Source: Public Accounts (actual); Department of Finance (forecast)

44

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2017 2018f 2019f 2020f 2021f 2022f 2023f

Program Expenses (actual) Program Expenses (forecast)

$ B

illi

on

s

Source: Public Accounts (actual); Department of Finance (forecast)

45

-6%

-4%

-2%

0%

2%

4%

6%

2018f 2019f 2020f 2021f 2022f 2023f

Program Expense Growth Average Growth Rate CPI Forecast

Source: Department of Finance

46

0

2

4

6

8

10

12

14

16

18

NL NS PE NB QC ON MB SK AB BC

Program Interest

$ 000

Source: Public Accounts – all Provinces; Statistics Canada

47

Source: Dr. Wade Locke

0%

5%

10%

15%

20%

25%

30%

35%

40%

NL NS PE NB QC ON MB SK AB BC

2017 2038

48

Source: Statistics Canada

0%

5%

10%

15%

20%

25%

30%

35%

40%

NL NS PE NB QC ON MB SK AB BC

2017 2038

49

Source: Statistics Canada

50

Source: Dr. Wade Locke

51

-

5

10

15

20

25

30

NL NS PE NB QC ON MB SK AB BC

Source: Statistics Canada

52

0

1

2

3

4

5

NL NS PE NB QC ON MB SK AB BC

Kilometers/One thousand residents Average of all other provinces

Source: Statistics Canada (population); Transport Canada (road statistics)

53

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Source: Public Accounts

54

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Salaries and

Benefits

Operating Grants and

Subsidies

Professional

Services

Amortization Property,

Furnishings and

Equipment

Source: Public Accounts

Other Significant Issue

55

Nalcor is a “Government Business Enterprise”

56

Nalcor is a “Government Business Enterprise”

Presumption with a GBE Debt is self-supporting by customers (ratepayers)

57

Nalcor is a “Government Business Enterprise”

Presumption with a GBE Debt is self-supporting by customers (ratepayers)

Debt supported by taxpayers Shown directly in Public Accounts

58

Nalcor is a “Government Business Enterprise”

Presumption with a GBE Debt is self-supporting by customers (ratepayers)

Debt supported by taxpayers Shown directly in Public Accounts

Debt supported by customers (ratepayers) Offset by asset in Public Accounts

59

Nalcor is a “Government Business Enterprise”

Presumption with a GBE Debt is self-supporting by customers (ratepayers)

Debt supported by taxpayers Shown directly in Public Accounts

Debt supported by customers (ratepayers) Offset by asset in Public Accounts

But only as long as ratepayers fully support the debt

60

Province considering options to mitigate high electricity costs

61

Province considering options to mitigate high electricity costs

Province will have to consider impact on Public Accounts

62

Province considering options to mitigate high electricity costs

Province will have to consider impact on Public Accounts

Issue to consider: Whether debt will, effectively, be shifted from being

ratepayer supported to being taxpayer supported and potential impact on the Financial Statements of the Province

63

Summary

64

Province forecasting a surplus in 2022-23

Dependent on: Achieving revenue forecast Oil price and production

Nalcor profit

Economic growth

Expenses kept to forecast levels Effects of inflation

Demographic and other pressures

Muskrat Falls rate mitigation strategy

If forecast not achieved? Either be prepared to pay more – or Be prepared for lower services

65

Thank You

66