Budget Bulletin: Debt

Debt and Debt Servicing

• Province’s Net Direct Debt on March 31, 2001 is forecast to be almost $11.5 billion.

• Interest payments are budgeted at $909 million in fiscal year 2001–02.

In the fiscal year 2001–02, the Nova Scotia government will pay more money in interest on the provincial debt than it will on educating children in public schools. Without a change in financial direction, children in Nova Scotia’s primary class of 2001 could still be paying off the provincial debt when their own children start school in 25 years’ time. The only way to start turning this around is to stop deficit financing and begin achieving surpluses.

The province paid $971 million in debt-servicing costs in 2000–01, up from $827 million in the previous year. Most of this increase was due to the assumption of the debt of Nova Scotia Resources Ltd., financing of budgetary deficits, interest on P3- school and other leases, and the province taking over from school boards their early-retirement pension obligations. The remainder is largely due to currency changes.

In order to refinance maturing debt, to fund the current deficit and other cash requirements, the province expects borrowing to be just over $1 billion in 2001–02. The Nova Scotia government has financed its debt largely through the issue of bonds in the Canadian, United States, Japanese, and European markets. These bonds are rated by credit-rating agencies. Generally, the amount of interest the province pays depends in part on these ratings and the appetite of investors to buy Nova Scotia debt. The higher the bonds are rated, the better the province’s access to markets and the lower the rate of interest the province must pay. Nova Scotia’s bond issues are generally purchased by underwriters, such as securities firms. These securities firms in turn sell the bonds to investors, such as individuals, pension funds, and insurance companies.

NOTE: For other 2001–02 budget information, visit the Department of Finance Web site at www.gov.ns.ca/finance .