Provincial Government Releases 2020-21 Fiscal and Economic Update

  • Finance

July 24, 2020

In the 2020-21 fiscal year, the Provincial Government mobilized spending across government departments to protect the social and economic well-being of Newfoundland and Labrador residents and businesses during the COVID-19 crisis. At the same time, the related drop in the global oil price significantly reduced anticipated provincial revenues.

Today, the Honourable Tom Osborne, Minister of Finance and President of Treasury Board, presented a 2020-21 fiscal update that reflects the anticipated impact of these combined pressures as government works to prepare Budget 2020.

The current projected deficit for the 2020-21 fiscal year is $2.1 billion, an increase of $1.35 billion from the original Budget 2019 projection from April 2019 of a $796 million deficit for 2020-21. This change is a result of both revenue and expense changes.

Revenue projections for 2020-21 decreased by $631 million, primarily as a result of the unanticipated decrease in the global demand for oil:

  • The average oil price projection is cut in half, from an original projection of $68 US per barrel to $34 US per barrel;
  • This lower price of oil, combined with the longer than anticipated shutdown of the Terra Nova FPSO, has resulted in a projected decrease of $560 million in oil revenues; and
  • A net reduction of $71 million from all other revenue sources.

During the same period, expenses increased by $720 million, including increases resulting from government’s response to the COVID-19 pandemic. The most significant of these changes include:

  • $261 million in increased healthcare costs as a result of COVID-19 and other pressures;
  • A $200 million contingency fund to address the impacts of COVID-19, approved by the House of Assembly on March 26, 2020. The current net impact of spending from this fund is $118 million; and
  • $127 million as a result of changes to Budget 2019 assumptions on pensions and other post-employment benefits, as well as interest adjustments as a result of higher than anticipated borrowing costs.

These cash flow changes, combined with the delay in the commissioning of the Muskrat Falls project, have resulted in a projected borrowing requirement of $3.2 billion for 2020-21. Consequently, the provincial net debt is anticipated to reach $16.7 billion in 2020-21.

As a result of the unanticipated negative economic impacts due to COVID-19, most economic indicators are underperforming when compared to original Budget 2019 projections. Employment projections have been reduced by 11,400 and Real GDP has been reduced by $1.8 billion.

This update is a snapshot of current projections, and does not presuppose any Budget 2020 decisions. The Federal Government announcement regarding the Safe Restart Program on July 16 is also not included in this projection, as details on funding allocations are still being determined. Through this agreement, the province will receive a minimum of $146.3 million.

The province is also recording a decrease in revenue of $225 million for 2019-20 as a result of the non-cash impairment of White Rose and Hibernia South Extension assets in oil and gas due to the significant decrease in the price of oil, as was announced by Nalcor in July. This changes the 2019-20 surplus estimate to $1.04 billion from the $1.27 billion projection provided in June 2020.

Quote
“Despite facing both a public health and a fiscal crisis, this province’s effective fiscal management and response to COVID-19 during these challenges is evident when you compare the impacts that other jurisdictions have reported during their recent fiscal updates. Budget 2020 will represent the next phase of our balanced fiscal approach as we lay the groundwork for addressing the new global realities and how they affect Newfoundland and Labrador.”
Honourable Tom Osborne
Minister of Finance and President of Treasury Board

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Media contact
Marc Budgell
Finance
709-729-2477, 689-0430
marcbudgell@gov.nl.ca

2020 07 24 10:15 am