Budget Bulletin: Debt and Debt Servicing

The public debt of almost $11 billion represents the biggest single threat to the programs and services Nova Scotians care about.

The Nova Scotia government debt has steadily increased to the point where, in 2000-01, debt-servicing costs are the government's second-largest single expenditure, more than is spent on education from Grade Primary to Grade 12. It wasn't always like this. In 1974, Nova Scotia's debt-servicing costs were $40 million, and more than four times that amount, $165 million, was spent on Primary to Grade 12 and vocational education. In 2000-01, debt-servicing costs will be $900 million, a 2,250 per cent increase in 26 years. The total government debt is now growing at a rate of more than $1,000 every minute.

Unlike many aspects of government finances, such as revenue and program expenditures, there is often little direct control over debt-servicing costs. Government is vulnerable to fluctuations in interest and currency rates. An increase of one per cent in interest rates would result in increased debt-servicing costs of $15 million.

The $900-million debt-servicing cost pays only the interest on the debt, it does not make a dent on the principal of almost $11 billion. The debt will only begin to be paid off once government balances the books and stops running deficits, which is projected to be in 2002-03.

Provinces like Nova Scotia, with excessively high debt-loads, are watched closely by agencies that rate our bonds. Selling bonds is how governments finance much of their borrowing. If a province has a poor bond rating, it will have a more difficult time selling its bonds and will have to pay a higher interest rate to attract buyers. Currently, Nova Scotia's outlook is rated as "stable" by three of the four major bond-rating agencies. The fourth has a "negative" outlook.

NOTE: For other 2000-01 budget information, visit the Department of Finance website atwww.gov.ns.ca/finance .