Investing.com -- Moody’s Ratings has today affirmed the Aa2 senior unsecured notes, aa3 baseline credit assessment (BCA), and (P)Aa2 senior unsecured shelf for the Province of Nova Scotia. The ratings outlook remains stable.
The affirmation reflects the province’s strong fiscal management, reliable fiscal transfers from the federal government, and the moderate debt and interest burdens. These factors are balanced against the fiscal challenges that the province is expected to face, leading to a short period of consolidated deficits and a rising debt burden.
Nova Scotia has shown strong fiscal management, often surpassing budget targets and using its fiscal policy flexibility to adjust spending and revenue measures. This robust governance is expected to aid the province in managing potential fiscal challenges arising from the government’s policy choice over its 2025-26 – 2028-29 fiscal plan, as well as pressures from emerging US trade disruption and global economic challenges.
Based on the province’s 2025-26 budget, a consolidated deficit of CAD697.5 million (4.2% of revenue) is forecasted for 2025-26, followed by a series of reduced deficits, leading to a balanced budget by 2028-29. The deficit could rise to CAD897.5 million (5.4% of revenue) with the inclusion of a CAD200 million contingency for unforeseen budgetary impacts, primarily related to US trade disruption on Canadian exports.
The government’s fiscal plan remains broadly aligned with the fiscal plan presented in last year’s budget, despite incorporating several measures from its fall 2025 provincial election platform. This highlights the government’s efforts to incorporate new fiscal challenges within previous planning guidelines.
Approximately one-third of the province’s total revenue comes from reliable federal transfers, which are known in advance of each fiscal year and are formulaic in their calculation. This reduces the budgetary impact should Nova Scotia’s tax revenues fail to reach budgeted levels.
The province’s debt burden is forecasted to rise modestly over the life of its 4-year fiscal plan, with the pace of growth in the first two years largely at the same rate previously forecasted. The province’s debt burden, measured as net direct and indirect debt relative to operating revenue, is expected to rise to near 140% by March 31, 2027, up from an estimate of 104.5% at March 31, 2025. Despite this increase, the debt burden will remain well aligned with Aa2 rated peers.
Nova Scotia’s interest burden is likewise expected to see marginal increases, rising to 5.0% on March 31, 2027 from 4.2% on the same date in 2025.
The Aa2 rating of Nova Scotia incorporates the aa3 BCA as well as the assumption of a high likelihood of support from the Government of Canada (Aaa stable) should the province face acute liquidity stress.
The stable outlook reflects the balance of risks between the province’s strong governance and management and the anticipated fiscal pressure. The outlook also captures the expectation that although the province’s debt burden will increase, the province will maintain a high level of control over the pace of growth and it will not exceed 140% of revenue by March 2027.
Nova Scotia’s Credit Impact Score is CIS-2, indicating that environmental, social, and governance (ESG) considerations do not have a material impact on the rating. The province’s strong governance balances the environmental and social risks it faces.
Nova Scotia’s rating could face upward pressure if the province were to record stronger than forecasted positive operating results which allow for a sustained lowering of the debt burden to below 120% of revenue in conjunction with evidence of structural improvements allowing for greater wealth generation. Downward pressure could arise if evidence emerges that the province faces a material structural deficit or fails to demonstrate progress along a path of fiscal consolidation, which would call into question the quality of the province’s financial management, or if the debt burden were to rise to over 160% of revenue.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.