Budget Bulletin: Reducing Foreign-held Debt

The Department of Finance has achieved a significant goal in reducing the province's foreign currency exposure to 20 per cent

• 18 months ahead of schedule. This means that the province's finances are less vulnerable to sudden or dramatic changes in foreign currency markets.

The province has carried significant foreign currency exposure in its debt portfolio. It borrowed significant amounts in American, Japanese, and Swiss currencies in the 1980s and early 1990s. By March 31, 1995, the province's foreign exchange exposure stood at 72 per cent.

The Nova Scotia Provincial Finance Act requires that the province reduce its foreign currency exposure to less than 20 per cent and that all maturities of greater than one year are refinanced in net Canadian dollars. The government went a step further by announcing in the 1999 budget that all foreign currency debt coming due for a term exceeding one year will be refinanced in Canadian dollars or on a fully hedged basis. ("Hedging" is a financial transaction used as a protective measure. It can reduce the risk of price fluctuations of a security.)

The Department of Finance originally estimated that it would meet the 20 per cent foreign currency exposure target no later than mid-2004, but that goal was actually reached by March 31, 2003. Our remaining foreign currency debt is in US dollars.

NOTE: For further 2003-04 budget information, visit the Department of Finance Web site at www.gov.ns.ca/finance .