Province of Manitoba Economic, Fiscal and Borrowing Update Manitoba Finance: September 2018 1
Manitoba Quick Facts One of ten Canadian provinces (fifth-largest in population) Centrally located in North America with a comprehensive transportation and communication network Total area 650,000 km 2 Population: 1.34 million, the fastest growing province in the last three years Capital: Winnipeg, Pop. 825,700 Extensive natural resources (minerals, forests, fertile soil, freshwater lakes) Sound credit rating: Moody s: Aa2 (stable) and S&P: A+ (stable) 2
Manitoba Economy: Consistent Growth Diversified economy, with a majority of medium-sized industries. Economic activity and jobs are not focused on one particular sector or area, as a result, long-term progress is balanced by growth across different sectors. Manitoba s 10-year average annual real GDP growth has been relatively stable over the last 15 years, while the national average has declined. 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 10-Year Average Annual Growth in Real GDP: Manitoba and Canada, 2002-2016 (Compounded Average Annual Per Cent) 3.5 2.4 Manitoba Canada 2002 2004 2006 2008 2010 2012 2014 2016 2.2 1.6 Source: Statistics Canada 3
Diversified Industries GDP By Industry Shares, 2017 Public Administration 7.7% Education Services 5.6% Health and Social Services 9.0% Agriculture, Forestry and Fishing 4.3% Utilities 3.4% Mining, Oil and Gas 3.3% Construction 8.0% Accommodation, Food, Arts, Entertainment, Information and Culture 5.5% Manufacturing 9.7% Professional and Scientific 3.3% Administration, Management of Companies and Other Services 4.1% Real Estate, Rental and Leasing 3.9% Note: Excludes imputed rent Finance and Insurance 5.5% Retail 5.7% Transportation and Warehousing 5.9% Wholesale 6.4% Goods-Producing Commercial Services Non-Commercial Services Sources: Manitoba Bureau of Statistics and Manitoba Finance 4
Manitoba s Broad Export Base Grains, Oilseeds and Livestock Aerospace Components and Service Transit and Inter-City Buses Processed Food Products Machinery and Equipment Mining and Oil Extraction Hydro Electricity Industrial Chemicals Pharmaceuticals 5
Lower U.S. Trade Exposure Manitoba International Exports, 2017 Canada International Exports, 2017 European Union 4.3% Japan 5.9% China 10.1% Other 15.0% United States 64.7% European Union 7.7% Other 9.2% United Kingdom 3.4% China 4.5% United States 75.2% Manitoba: 35% Non-U.S Exports Canada: 25% Non-U.S Exports Source: Statistics Canada 6
Growing Population Resilient Labour Market Annual Population Growth, 2000 2017 (Per Cent) 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 Historical Average 0.8% Fastest population growth among provinces over the past three years, while maintaining the second lowest unemployment rate. 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 Unemployment Rate, 2017 (Per Cent) 5.1 5.4 6.0 6.1 6.3 6.3 7.8 8.1 8.4 9.8 14.8 0.0 2000 2004 2008 2012 2016 0.0 BC MB ON QC SK CAN AB NB NS PE NL Source: Statistics Canada 7
Adding Value and Jobs at Home Capital Investment In Manufacturing, 2006-2018i (In Millions of Dollars) 800 700 600 500 400 300 200 100 0 Acceleration of capital spending on value-added processing within Canada 2006 2008 2010 2012 2014 2016 2018i i Capital spending intention for 2018 Source: Statistics Canada Increasing farm diversification and employment, especially in rural areas. Broadening Manitoba s export base and improving agriculture competitiveness and profitability. HyLife is expanding its Integrated Pork Production and Processing System. Adding more processing capacity and up to four finisher sites. Roquette is building the world s largest pea-protein processing facility in Manitoba. Simplot plans to more than double its food processing capacity for frozen french fries and formed potatoes. 8
Economic Growth Rate Real GDP Growth, 2013 2019f (Per Cent) 3.5 3.0 2.5 2.0 1.5 1.0 0.5 2.5 2.8 Following a recovery from a commodity price shock, growth expected to moderate in the near-term 2.9 2.0 1.0 Canada Manitoba 1.2 1.4 1.7 3.0 2.5 2.1 1.8 Forecast 1.9 1.7 0.0 2013 2014 2015 2016 2017 2018f 2019f f Forecast based on Manitoba Finance Survey of Economic Forecasts Sources: Statistics Canada, Manitoba Bureau of Statistics and Manitoba Finance Survey of Economic Forecasts 9
Economic Outlook, 2018f-2019f Manitoba Finance Survey of Economic Forecasts (As at April 2018) 2018f 2019f Manitoba Canada Manitoba Canada Percent Growth Unless Noted Real GDP 1.8 2.1 1.7 1.9 Nominal GDP 3.7 4.2 3.7 4.0 Employment 0.6 1.2 0.8 0.9 Unemployment Rate (%) 5.8 5.8 5.7 5.8 Consumer Prices 2.5 2.4 2.0 2.1 f Forecast based on Manitoba Finance Survey of Economic Forecasts Source: Manitoba Finance Survey of Economic Forecasts 10
Province of Manitoba: Fiscal Update Keeping our Promises Responsible Recovery Correcting the Course 11
Building Budgets that Focus on Outcomes Bending the Cost Curve Streamlining collective bargaining agreement and establishing sustainable salary expectations. Reducing core government management by 15%. Return on investment test for capital spending. Transformation Management Office to oversee health care spending. Moving from not-for-profit accounting standards to Canadian Public Sector Accounting Standards. Manitoba s Competitive Tax Disadvantage Bringing Manitoba s tax regime in line with other provinces. Supporting the Economy Commitment to annually spend at least $1 billion on strategic infrastructure. The level of investment in 2018/19 is over $1.6 billion, exceeding the commitment. 12
Budget 2018 Sinking Funds and Other Earnings 1.6% Revenues Federal Transfers 26.8% Income Taxes 24.1% Community, Economic and Resource Development 8.3% Justice and Other 9.2% Expenses Debt Servicing 5.9% Health 38.7% Net Income of Government Business Enterprise 5.0% Fees and Other Revenue 13.9% All Other Taxes 28.6% Families 12.3% Education 25.6% Source: Manitoba Finance 13
Gaining Credibility 200 0-200 Budget vs. Actual/Forecast Annual Surplus (Deficit), 2011-12 to 2017-18f (In Millions of Dollars) Budget (438) Previously missing budget commitments Budget (460) Budget (518) Budget (357) Budget (422) New administration -400-600 -800-1,000-1,200 Actual (1,001) Actual (560) Actual (522) Actual (430) Actual (839) Actual (789) Budget (911) Actual (695) Budget (840) f forecast Source: Manitoba Finance 14
Responsible Path Forward 200 0-200 -400-600 -800-1,000 Actual (789) Annual Surplus (Deficit), 2016-17 to 2021-22p (In Millions of Dollars) Actual (695) New administration Budget (521) Projection (388) Projection (280) Budget 2018 provides an improved trajectory from Budget 2017 Projection (142) f forecast, b budget and p projection Source: Manitoba Finance 15
Comparable Among Peers Net Debt to GDP Ratio, 2017 2018f (Per Cent) Interest on Debt to Revenue, 2017 2018f (Cents/Revenue) 50.0 45.0 40.0 Average among provincial peers 14.0 12.0 Below average among provincial peers 35.0 10.0 30.0 25.0 20.0 8.0 6.0 15.0 4.0 10.0 5.0 2.0 0.0 AB BC SK PE CAN MB NS ON NB NL QC 0.0 AB SK BC MB PE NB CAN ON NS QC NL f forecast Sources: Provincial and federal budgetary documents and Manitoba Finance calculations 16
Competitive Business Environment Manitoba s small business tax rate is currently at 0% on income up to $450,000, increasing to $500,000 in 2019. Manitoba s general corporate income tax rate of 12% remains below the Canadian provincial average. The combined Manitoba and federal general corporate income tax rate of 27% is comparable to the median of our ten largest U.S. state trading partners. Manitoba has a number of targeted corporate and community development tax credits to support economic growth in the province. Manufacturing Investment Tax Credit for plant and equipment investment for first-time use in manufacturing or processing. Manitoba Research & Development Tax Credit for scientific research and experimental development. Manitoba Film and Video Production Tax Credit for eligible production expenditures including eligible labour expenses. Co-operative Development Tax Credit for cooperatives and credit unions that make financial contributions towards cooperative development. Community Enterprise Development Tax Credit assists community-based enterprise development projects to raise local equity capital. 17
Manitoba Credit Rating Profile The Province of Manitoba has made meaningful progress toward its goal of eliminating its fiscal deficit by 2024, resulting in improved budgetary performance since our last review. Research Update July 17, 2018, S & P At the same time, the province extended its fiscal outlook to four years (from three), a change that provides improved visibility into its fiscal planning. Issuer Comment March 13, 2018, Moody s Investors Service Moody s Credit Ratings S&P Credit Ratings BC Aaa BC AAA SK Aaa SK AA AB Aa1 QC AA - MB Aa2 NS AA - QC Aa2 MB A + ON Aa2 AB A + NS Aa2 ON A + NB Aa2 NB A + PE Aa2 PE A NL Aa3 NL A Sources: Moody s Investor Services and Standard and Poor s Rating Services 18
Manitoba Quebec British Columbia Saskatchewan Texas Wyoming Kentucky North Dakota South Dakota Minnesota Wisconsin Ontario California North America s Clean Energy Leader 97.5% of electricity generation is hydro, 2.3% is wind and 0.2% is thermal. 20 Retail Price of Electricity (Cents/kWh $C) 18 16 Roughly 1/4 of the electricity generated is exported outside of Manitoba (U.S., Canada). 14 12 10 8 Manitoba Hydro s current generation capacity is 5,680 MW, with an additional 4,400 6 4 MW more of potential 2 generation identified. 0 Source: Manitoba Hydro, 2016/2017 Annual Report 19
Manitoba Hydro Capital Initiatives Manitoba Hydro is currently investing in both a major generation project and transmission project. Keeyask Hydro Generating Station Project Design Capacity: 695 MW Anticipated Completion: 2021-22 Anticipated Cost: $8.7B Bipole III Transmission Line Project Design Capacity: 1,364 km Completion Date: July, 2018 Cost: $5.4B Source: Manitoba Hydro 20
Borrowing Requirements C$6.4 billion Refunding Maturing Debt $2.3 billion New Cash Requirements $4.1 billion $527M Other Crowns & Org. $635M General Programs $371M Capital Investments $2,600M Manitoba Hydro Budget 2018 was tabled on March 12, 2018. Expected borrowing requirements for fiscal year 2018-19 are C$6.4 billion. Planned funding through both domestic and international capital markets. To date, we have funded $4.29 billion, 63% of our needs for fiscal 2018-2019. Source: Manitoba Finance 21
Borrowing Program (C$ Billion) 7.0 Future Expectations International Domestic 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 2017/2018 2018/2019f b budget Source: Manitoba Finance 22
Funding Sources (Apr 1, 2013 Sept 19, 2018) AUD MTN 4% CAD Public Debentures 55% U.S. Global 15% FRN 6% EMTN 9% MTN 10% Savings Bonds 1% (discontinued in 2016) GBP, JPY, HKD & EURO Source: Manitoba Finance 23
Debt Maturity Profile 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2051 2053 2055 2057 2059 2061 2063 2065 2067 (C$ Billion) 4.0 3.5 3.0 2.5 Manitoba conducts prudent debt management practices and has achieved a stable level of debt maturity profile over the intermediate term. 2.0 1.5 1.0 0.5 0.0 As of September 19, 2018. Excludes short-term debt and other liabilities, and the incremental impact of future financing. Net of sinking fund maturities. 24
Debt Portfolio Fixed/Floating Ratio March 31, 2017 March 31, 2018 Floating 10% Floating 10% Fixed 90% Fixed 90% f forecast. All figures for Core Government debt Source: Manitoba Finance 25
Latest Economic and Financial Reports are available online: Manitoba Finance: http://www.gov.mb.ca/finance/ Economic Highlights: http://www.gov.mb.ca/finance/pubs/highlights.pdf Economic Statistics: http://www.gov.mb.ca/finance/pubs/statistics.pdf Manitoba Provincial Budget: https://www.gov.mb.ca/budget2017/index.html Thank you! 26