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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