Description: It can’t be good news any time a bond-rating agency downgrades your outlook from “stable” to “negative.” But that is exactly what happened this past week as the Dominion Bond Rating Service (DBRS) provided its opinion on the current state of the Province of New Brunswick’s financial situation. With an aging population requiring health services, and a threat of young, educated citizens heading elsewhere in Canada, the province obviously has significant challenges. One thing relatively sure is that with interest rates rising and debt status facing a downgrade, the Province’s debt service costs will impose a significant constraint on the government’s options.
Date: March 1, 2018
1) How will a downgrade in debt status affect a government’s budget?
2) What do you think would happen if the Province of New Brunswick defaulted on its debt?
3) You can read about DBRS’s rating scale for debt on page 543 of Wiley’s Financial Accounting: Tools for Business Decision Making, Where does New Brunswick fit in this scale? Where does your home province fit?