Selinger Resists Austerity With Manitoba Bond Costs Low

Manitoba Premier Greg Selinger said he’ll keep borrowing and increase spending before eliminating the budget deficit in 2016, taking advantage of low interest rates to invest in infrastructure amid a fragile economic recovery.

“The austerity approach as we know globally has its challenges,” said Selinger, in an interview at Bloomberg’s headquarters in New York today. “Just a pure spend approach has challenges in terms of fiscal prudence and responsibility.”

Selinger’s New Democratic Party government, in power since 2009, has run five straight budget deficits, including a C$357 million ($328 million) shortfall forecast for the year that began April 1.

Selinger, 63, said his government opted not to rush back to balance in its fiscal plan “with the economic recovery being a bit fragile as it goes forward, a bit halting, and with gigantic growth in the public’s demand and the business community for better infrastructure.”

There were no tax increases in the March 6 budget after last’s year 1 percentage point sales tax increase that’s estimated to raise C$1.5 billion over five years.

Manitoba sold $800 million of 10-year bonds in the U.S. today at a yield 39 basis points greater than benchmark debt. The province’s debt is rated Aa1 by Moody’s Investors Service and AA by Standard & Poor’s.

“We are working our way back to balance at a time when our debt costs in Manitoba are 5.8 cents on the dollar,” he said. “When I came into office it was 13.3 cents on the dollar.” The province has a goal of stabilizing its ratio of debt to gross domestic product at about 29 percent or 30 percent, down from 33 percent when he took office.

Foreign Buyers

Foreign investors in the U.S. and Japan have sought the province’s bonds because they tend to pay a higher yield than peers while offering a high credit quality and political stability, Selinger said.

“A lot of people like our product because we do pay a little bit more, and we never ever have a problem paying it off,” Selinger said. He didn’t give details on the buyers of the bonds sold today or possible future debt sales.

On his spending plans, Selinger said he’s focused on the quality of health care that makes up 43 percent of his C$15.1 billion budget, and education that makes up another 26 percent. By controlling other spending, the government is freeing up money for projects such as the new transportation hub near Winnipeg’s airport.

“We are re-inventing ourselves,” he said “for international trade.”

Weaker Dollar

The weaker Canadian dollar against the U.S. currency will also help the province’s manufacturers and boost government revenue, Selinger said. The dollar had been “high” at some points over the last decade, he said, and the province sought to aid companies in becoming more competitive, he said. The loonie has weakened almost 7 percent in the past 12 months.

Manitoba is home to manufacturers such as bus maker New Flyer Industries Inc. and Palliser Furniture Upholstery Ltd.

“The lower dollar obviously helps the manufacturing guys in terms of where they want to locate expansions and jobs,” he said. “The lower dollar is clearly a plus right now, and taking it down 10 cents has been a big boost to exporters.”

While the province’s bond sales in foreign currencies are swapped back into Canadian dollars as a matter of policy, Manitoba Hydro’s revenue has been boosted by the weaker currency because the utility’s sales of power to U.S. customers are priced in U.S. dollars, he said.

It’s “a very good story when the Canadian dollar depreciates.” Selinger said. “Our margin has improved.”

Manitoba will probably see inflation-adjusted output expand 2.2 percent this year, unchanged from last year, the Bank of Montreal forecast today. The province’s unemployment rate, 5.7 percent, is below the national rate of 6.9 percent.

Selinger became premier following the appointment of his predecessor, Gary Doer, as Canada’s Ambassador to the U.S. The next provincial election will probably take place in 2015.

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